Contract Surety Bonds
Travelers knows contract surety bonds
Our financial resources allow us to deliver the contract surety bonds our customers need from large work program commitments to the smallest clients in the industry.
In fact, we’ve provided bonding for such monumental projects as the refurbishment of the Statue of Liberty, the Grand Coulee Dam and the Hoover Dam, while also supporting the safe and successful completion of small-scale construction projects, such as local buildings, paving jobs and utility work.
Who are contract surety bonds for?
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General contractors and construction managers
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Prime subcontractor trades, mechanical and electrical
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Road and bridge builders
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Paving contractors
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Utility, water and sewer line contractors
Types of contract surety bonds
Contract surety bonds are bonds that the government or an owner of a construction project may require a contractor to obtain. They are designed to ensure that the contractor is qualified to perform the necessary work, will complete the project in a timely manner and will pay the subcontractors, suppliers and laborers that are necessary to complete the project. If the contractor cannot fulfill these guarantees, the company issuing the contract surety bond must find another contractor to complete the contracted project or compensate the construction project owner for their financial loss.
Federal construction projects valued at $150,000 or more require contract surety bonds, and most state and municipal governments have similar stipulations. Many private owners embarking on construction projects also require these bonds for their contractors. They are also sometimes required by lenders and by general contractors of the subcontractors they bring on for the project. There are various types of contract surety bonds, including:
Bid bonds
These bonds protect the project owner financially if the bidder that is awarded a contract:
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Doesn’t sign the contract.
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Doesn’t provide required performance and payment bonds.
Bid bonds help project owners filter out unqualified bidders by ensuring that the bidding contractor is financially stable and has the resources and experience to complete the project. Bid bonds also guarantee that if the bidding contractor does not honor the terms of the bid, the project owner will be compensated. For instance, if the contractor tries to change the terms of the contract after it is signed – raising prices, using inferior materials or drastically extending the timeline, for example – and the contract is broken, the bond helps compensate the project owner for cost differences between the bid they initially accepted and the next lowest bidder who they will likely switch to for the project.
These bonds also help prevent contractors from submitting impractical, unrealistic or inappropriately low bids just to obtain the contract.
Payment bonds
A payment bond is a three-way contract between the project owner (obligee), the main contractor (principal) and the surety bond issuer (surety), to ensure all workers and suppliers will be paid appropriately in order to avoid associated liens.
A payment bond guarantees that the contractor will pay certain subcontractors, laborers and material suppliers incorporated in the construction project contract. Payment and performance bonds are typically required together.
Maintenance bonds (or warranty bonds)
Maintenance bonds protect the project owner from defective workmanship or materials for a specified time period defined in the contract. If a problem becomes evident during the warranty period, this bond ensures that either the defect will be fixed or that the project owner will be financially compensated. These bonds are not usually legally required and are less commonly used than other contract surety bonds.
Performance bonds
Performance bonds guarantee that if a contractor defaults on the contract, the project owner is protected from financial and other potential losses. They guarantee satisfactory project completion and, if that’s not possible, compensation for the project owner. If a contractor defaults and declares bankruptcy, the surety company must compensate the project owner.
Supply bonds
Supply bonds are similar to performance bonds, but they apply to suppliers. This type of bond guarantees that a supplier will procure and provide materials of the type and at the price agreed upon in the initial contract terms. If the supplier defaults on this agreement, the surety must compensate the project owner. Not all projects or states require these bonds, but federal projects exceeding $100,000 typically do.
Subdivision/site improvement bonds
Site improvement bonds serve as a guarantee by a developer that public improvements to streets, sidewalks, curbs, sewers, drainage systems and more will be completed to the standards outlined in the contract, in compliance with all regulations and in the agreed-upon time frame.
This bond may also include a form of payment bond that guarantees all suppliers, subcontractors and laborers will be paid by the developer. Subdivision bonds are typically required when a developer seeks to construct a new building, while site improvement bonds are needed when a developer intends to make improvements on existing buildings, structures or sites.
Schedule sensitive subcontractor bonds
This bond minimizes project disruption and helps maintain the originally agreed-upon project schedule by allowing work to continue during a dispute. Additional benefits include the following:
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An accelerated time frame for surety response, as quickly as 30 days.
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Direct access to a project-dedicated Claim professional.
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The ability to keep the project moving during the claim investigation period.
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Allowance for penal sum increases up to 10% of the contract price without requiring surety consent.
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Coverage of warranties as specified in the subcontract.
Our reliability is proven
For more than 100 years, Travelers has been a leader in the surety industry. We consistently earn high marks for financial strength and claims-paying ability.
Applications and forms for agents
Access all management and professional liability applications, as well as the surety bond forms library.
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