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What is a construction bond or Contract Surety Bond? 

To understand what is a construction bond, we need to know the nature of a surety bond. It is an agreement involving three parties and usually served as protection for the client.  A complex commercial project could see significant financial losses if contractors hired to do tasks cannot fulfill their obligation. Having a safety-net with surety bonds will reduce the risk.

Surety involves the following parties:

  1. The Principal: the party on whose obligation is guaranteed; and 

  2. Obligee: the party to whom the bond is payable in the event of a default;

  3. Surety: the party that assumes the obligation of the Principal when they cannot.

Construction Bond

A surety bond is a form of financial credit. This is also known as a bond guarantee. The transaction always involves three parties: the obligee, the Principal, and the surety. A surety bond protects the obligee (the party to whom the bond is paid to in the event of a default) against losses, up to the bond's limit, resulting from the Principal's (the party with the guaranteed obligation) failure to perform its obligation. The surety, for example, an insurance company, assumes the obligation of the Principal when failed.

A surety bond protects the obligee against losses, up to the bond's limit, resulting from the Principal's failure to perform its obligation or undertaking. Unlike insurance, a loss paid under a surety bond is fully recoverable from the Principal.

How do surety bonds work? 

A surety bond will back a principal into acting accordingly by specific terms. It provides the clients (obligees) with financial guarantees that contracts and other business deals will complete according to mutual terms. Should the Principal unable to fulfill them, the client (obligee) can claim the surety bond to recover losses. 

The surety provider will have the right to request reimbursement from the Principal in case of a claim.

Common types of surety bonds

There are two common forms of surety as the following :

Commercial Surety - in which you can read more here.

Construction Bond

Contract surety bonds are used primarily in the construction industry. These bonds protect the owner (obligee) from financial loss if the contractor (Principal) fails to fulfill their terms and conditions. The obligee is safeguarded against a contractor's inability to complete a job.

We work with general contracting, civil projects and road building, sewer and water main systems, or any sub-trade, construction supplier and manufacturer.

Types of Contracts Secured by Surety

The most common project that requires surety or construction bond in the public sectors, including :

  1. Construction contracts security;
  2. Security for any service contracts requiring performance guaranty (Such as waste collection, recycling center, snow removal)
  3. The Public-Private Partnership or commonly known as P3 contracts (contracts such as transit, bridges, hospitals).

Commonly Used construction bond or Contract Surety Products

There are five widely used construction bonds or contract surety products. The first three are used at the pre-tendering or tendering stage, and the last two are used for contract performance.

Upon initial assessment, we will proceed with the application, and if everything in place, a surety facility will be created to guarantee commitments with a Contract Surety Bond. These bonds offer protection from start to finish to businesses focusing on:

  • Agreement to Bond
  • Bid Bonds
  • Performance Bonds
  • Labour and Material Bonds
  • Maintenance, Supply and Lien Bonds

There will be customized solutions for a project manager, general contractor, subcontractor, or supplier or manufacturer to provide a surety facility that meets any business's evolving needs. It is necessary to understand the business goals and focus on how the business is run. 

It is essential to study how resources, skills, and experience are allocated, understand the business, and build a surety solution with risk management analysis. The objective is to free the Principal to focus on what they are good at running the company. 

Working with construction industry - construction bond or Contract bonds

In the construction industry, contract bonds support a wide variety of projects from start to finish.

  • Tender bonds 

At the beginning or tendering stage of a construction project, either bid bonds, agreement to bond letters are used. 

  •  Final bonds 

Sometimes, labour and material payment bonds and performance bonds are needed at the construction or completion stages. A maintenance supply lien bond is also required from time to time.

Having your construction bond or contract surety

Our shared goal is the business's strength and success, our partners are with experienced risk management and underwriters skill professionals specialized in surety facility for the industry in need. 

Our expertise 

We can provide construction bond or contract surety accounts for the following types of businesses: 

• General contractors. 

Responsible for overseeing any industry, commercial, institutional project construction.

• Specialty needs

Contract involving demolition work, insulation, steel, formwork, environmental contractors, janitorial, landscaping, shoring and caisson work. 

• Civil jobs, roadbuilders, and excavation activities 

Usually involved with heavy equipment, concrete work, bridge, roadwork, tunnelling. 

• Sewer, water main, infrastructure's development, maintenance

For projects involving pipelines or drainage.

• Construction suppliers 

Those engaged in pre-cast concrete, steel, stone or plastics. 

• Sub-trades 

From drywall, electrical, masonry, mechanical, tile and terrazzo contractors to any sub-trades. 

• Manufacturers 

Providing doors, windows or cabinetmakers.

We pride ourselves on building reliable, mutually beneficial partnerships. 

Unique Construction Bond

We have experience in the following areas: 

• public-private partnerships, 3P's

• Cross border US bonds, 

• design-build projects, 

• customizing bonds for unique projects. 

Our experienced surety specialists will clearly and honestly communicate, providing extensive knowledge, customized solutions, and superior customer service – delivering value beyond the surety bonds we provide. 

Please note: This message is not intended to create any legally binding agreement. The insurer reserves all rights to request additional information or ask further questions as it deems necessary to conduct a full review.

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