The value of a construction bond designates how much the surety company issuing the bond will pay to settle claims. For example, a construction performance bond valued at $250,000 means the surety would pay up to a quarter million dollars to settle claims.
What are the four types of bonds in construction?
- 1) Bid Bond.
- 2) Agreement to Bond (a.k.a. Surety's Consent or Consent of Surety)
- 3) Performance Bond.
- 4) Labour and Material Payment Bond.
How does bonding work on construction projects?
Construction bonds are a type of surety bond that protects against disruptions or financial loss due to a contractor's failure to complete a project or failure to meet contract specifications. These bonds ensure a construction project's bills will get paid.
What is a bond rate in construction?
Premiums for construction bonds are calculated as a percentage of the bond value, and usually quoted in dollars per thousand: Bond Amount X Rate/1,000. Percentages are typically tiered given the size of the bond and average in the . 7 – 2.5% range but can go as high as 3% or more, depending on a variety of factors.
What are the four types of bonds used in construction Why do owners require them?
The major types of surety bonds are contractor license bonds, bid bonds, performance or contract bonds, and payment bonds. These bonds provide protection for the project owner and for taxpayers or investors in private projects. Usually, a project requires a trio of bid, performance, and payment bonds.