Contract bonds guarantee contractual terms are fulfilled, which is why they're commonly used in the construction industry. If a bonded contractor or construction firm fails to fulfill its contractual obligations, the project developer can make a claim on the bond to recover financial losses.
Bid bonds guarantee contractors and construction firms submit serious bid proposals and have the credentials necessary to actually accept the job. If a bid is selected and the contractor or construction firm declines the job or retracts the bid, the project developer can make a claim on the bond to collect the difference of the original bid and the next highest bid.
Payment bonds guarantee payment for services in the event the lead contractor goes bankrupt before the project is complete. Claims can be filed on the bond to reimburse those who worked on a project if the lead contractor is unable to pay them for their work.
Performance bonds guarantee contractors and construction firms complete projects according to the contractual terms. If they fail to do so, the project developer can make a claim on the bond to access funds that can be used to pay another contractor to finish the job.
Although these three bond types guarantee separate obligations, they're closely intertwined during the project bidding timeline.
Bid bonds are required when a bid is submitted for consideration before a project is awarded. If a project developer requires a bid bond, the surety underwriter will review the application submission with the assumption the payment/performance bond will be issued at a later date.
If a contractor/construction firm's bid is accepted, the payment and performance bonds will be issued and filed after the contract has been awarded but before the work begins. Payment and performance bonds are typically applied for, approved, invoiced, paid, and issued together - sometimes on the same form.
The timeline for contract bond underwriting and issuance requires at least 2-3 business days after a fully completed application has been submitted for review. You can submit your contract bond request online 24/7 or call 1 (800) 308-4358 if you'd like one of our friendly representatives to walk you through the process.