Types of Contract Bonds

Contract bonds are required in construction to guarantee project completion and financial protection. The three primary types are:

• Bid Bonds

• Performance Bonds

• Payment Bonds

Additional bond types may be required depending on the project.

Common Contract Bond Types

Contractor License Bond (CLB)

Required before obtaining a contractor’s license. Ensures compliance with state regulations.

Bid Bond

Guarantees that a contractor will honor their bid. If they withdraw, the project owner can recover the cost difference.

Performance Bond

Ensures the contractor completes the project according to agreed terms.

Payment Bond

Guarantees subcontractors and suppliers are paid, even if the contractor defaults.

Maintenance Bond

Covers defects in workmanship or materials after project completion.

Miller Act Bond

Required for federal construction projects over $150,000. Includes both performance and payment bonds.

Supply Bond

Ensures suppliers deliver materials and equipment as agreed.

RUS Contractor Bond

Required for rural utility projects over $250,000.

Public Right-of-Way Bonds

Right of Way Bond

Guarantees proper work within public property areas.

Encroachment Bond

Protects public property from damage caused by contractors.

Development Bonds

Site Improvement Bond

Ensures completion of improvements to land or property.

Subdivision Bond

Guarantees construction of public infrastructure within subdivisions.

How Contract Bonds Work

A contract bond is a three-party agreement between:

• Principal (Contractor)

• Obligee (Project Owner)

• Surety (Bond Provider)

If the contractor fails to meet obligations, the obligee can file a claim to recover losses.

Cost of Contract Bonds

Most contract bonds cost 1–3% of the bond amount, depending on risk and qualifications.

Underwriting may require:

• Credit check

• Personal financials

• Business financials

• Work-in-progress reports

• Insurance certificate

• Bank references

How to Qualify

Typically, contractors need:

• ~700+ credit score

• Strong financials

• Proven project experience

If declined, SBA-backed bonding programs may help contractors qualify for larger projects.

Key Differences

• Contract Bond: Covers the full project lifecycle

• Performance Bond: Guarantees project completion

• Payment Bond: Ensures subcontractors and suppliers are paid

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Junno LLC
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