What are construction bonds and what are their roles in the construction process? (Aaron Dean discusses with "Reel Lawyers")


Well, there are four very common forms of bonds. Payment bonds, performance bonds, bid bonds, and warranty bonds. And on public construction projects, payment bonds and performance bonds are required on substantially every federal project, state project, and local project. So the payment bonds are in place for the benefit of subcontractors and suppliers so they can pursue payment remedies if they’re not paid by the general contractor. A performance bond, in contrast, is for the benefit of the public owner. They can pursue a claim against the surety that issued that bond if the contractor defaulted and did not complete their work. On the front end of a project, bid bonds are used on both public jobs and private jobs, but more commonly on public jobs to ensure that if you submit a bid as a contractor and you’re awarded the project, you will sign the contract. And if you don’t, then action can be taken against that bid bond.

The least common bond is a warranty bond or a maintenance bond, and it’s a form of security to ensure that the owner can take action against the surety that issued that bond at the end of the project, usually during the warranty period just as an incentive to ensure that the contractor comes back and performs a punch list or warranty work.