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A contract bond is a guarantee the terms of a contract is fulfilled. If the contracted party fails to fulfill its
duties according to the agreed upon terms, the contract “owner” can claim against the bond to recover
financial losses or a stated default provision.
All contract bonds guarantee the performance and or payment of the obligations under contract.
What is a bond for construction?
To protect against disruptions or unlikely events during a construction project, an investor may require a
surety bond. This bond for construction will also protect any suppliers that fail to complete their work or
if the project fails to meet the contract’s specifications.
How does a construction bond work?
The construction bond works for the obligee, typically a government entity, to protect a project from
failing to get completed or not meeting the project specifications by the contractor who was awarded
the job. This bond ties the contractor to the project and ensures their performance will meet the
specifications.
What is a surety bond?
A surety bond is defined as a contract among at least three parties: the obligee: the party who is the
recipient of an obligation. the principal: the primary party who will perform the contractual obligation.
the surety: who assures the obligee that the principal can perform the task.
How does a performance and payment bond work?
The performance and payment bond guarantees that the project will be completed as promised in the
contact’s specifications and that all subcontractors and material suppliers will be paid in full, protecting
the project owner.
What is a guarantee of performance?
A guarantee of performance is issued to a contractor by a band or insurance company as a promise to
complete the project in full according to the contract plans and specifications. This is not to be confused
with a project requiring a performance and payment bond which is issued by a surety market, and may
require more extensive information about the project, contractor, and their history.
A project requiring a performance and payment bond typically requires a bid bond that allows them to
qualify to submit a bid for the project.
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