Learn more about contract bonds.

If the contracted party fails to fulfill its duties the contract owner can claim against the bond to recover financial losses. There are two main categories of contract bonds: bid bonds and performance bonds.

Bid Bonds

Bid bonds are usually the first step in a bonded contract process. Each bidder for a contract must guarantee the price bid by posting a certified check or indemnity bond, which is forfeited if the contractor fails to enter the contract awarded. Usually, the amount forfeited is the difference between their bid and the next lowest bid. The charges for bid bonds are nominal to encourage contractors to use bid bonds rather than certified checks.

Bid bonds guarantee that the contractor will enter a contract at the amount bid. When they do this, the bid bond is released.

Performance Bonds

The performance contract bond guarantees performance of the terms of a contract. It may be for the construction of a building or road or perhaps for a supply contract. It could be for a transportation contract or almost any kind of contract where one party might experience harm if the other party fails to perform.

The performance bond is largely the result of governmental and other public bodies which are required by law to award contracts for public work to the lowest responsible bidder. The requirement of a performance bond and the screening process which the surety must do eliminates unqualified contractors before the bidding process begins.

Performance bonds are also frequently required in the private sector, including residential construction. In most cases, the bond guarantees completion of the work and payment of all labor and material costs.

Available Policies and Rates

Call 877-376-8676 (877-ERMUNRO) to speak with a bond team member or email us at [email protected].

Source: CNA Surety. Reprinted with permission.

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