Understanding Common Types Of Contract Bonds
A contract bond can be purchased by a company to protect itself financially when guaranteeing the terms of a contract.In the event that a contract is not properly fulfilled, the person or company who entered into the contract and paid for services can recover financial losses. These types of bonds are most often used by construction companies and contractors, but companies in other industries may also choose to buy them as needed. There are several types of contract bonds available. Some of the most common types of contract bonds include:
Bid Bond
A bid bond is a type of contract bond that ensures that if a contractor provides a bid and is awarded a project, the company will adhere to, honor, and sign all of the contracts associated with the contract. Working with a contractor who has a bid bond in place ensures that their company can't submit low-ball bids and then change the quote and terms of the contract after the bid is accepted.
Performance Bond
A construction company or contractor who holds a performance bond is able to guarantee that the company will follow all stipulations laid out in the agreed upon contract, and they will complete the job as promised to the company or person who hired them. When a construction company or contractor holds a performance bond, they are required to stay on budget and complete the project on time. If they fail to do so, the person/company who hired the contractor or construction company can make a claim against the bond for any financial losses that may have occurred.
Maintenance Bond
A company that holds a maintenance bond is able to offer a financial guarantee that their labors and materials will produce an end product that is up to code and can last for many years. In the event that their is shoddy workmanship or problems with the labor practices or materials used, the customer can make a claim and the company who provided the bond will rectify the situation financially.
Subdivision Bond
Subdivision bonds are typically required for construction companies and home builders who are building houses in a new community. Holding this type of bond ensures that the construction company/home builder will continue to be responsible for improving the area and structures built for a set amount of time. In many cases, a home builder or construction company must hold a subdivision bond in order to be awarded an initial contract to build in a new community.