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Bid Bonds
A bid bond is provided to the Obligee/Owner from the contractor
in order to give assurance that if the contractor is the successful
bidder the contractor can provide a payment and/or performance
bond. If the contractor is the successful bidder and does
not enter into a contract and fails to provide a payment and
performance bond then the owner can make a claim on the bid
bond for the difference between the contractors bid and the
next bid or the amount of the bid bond (5% to 20% of the bid
amount) which ever is less. In some cases the owner can claim
the full amount of the bid bond even if it’s more then the
bid spread.
Miscellaneous Bonds
License and permit bonds are those required by state law,
municipal ordinance, or by regulation and in some instances
by the federal government or its agencies. To be licensed,
a contractor must have a bond and, in many states, a certain
amount of its insurance coverage. The bond may either be one
written by a Surety company or, in many states, a cash deposit
made with the State. In practice, the terms “license” and
“permit” are used interchangeably. The purpose of a license
or permit bond is usually to safeguard the public health,
welfare, morals, or assure the public’s safety. These bonds
are usually for the benefit of laborers, suppliers, and taxing
authorities, as well as most persons having contracts with
the contractor. The amount of the bond (the “penal sum”) is
the total limit of the Surety’s liability to all claimants
combined. Thus, where a contractor has several claims lodged
against its bond, the protection for any individual may be
much less than full amount of the bond. A license or permit
bond may thus provide someone with only minimal protection.
Before entering into a construction contract it is wise for
an owner to call the licensing agency to be sure that the
contractor is in good standing with bong. Please note that
all contractors should have general liability insurance, but
one may only check on the status of such insurance with state
agencies in those states that require the insurance for licensing.
Performance Bonds
A bond which promises that the terms of a contract, or some
of them, will be performed by the Principal/Contractor.
Payment Bonds
A bond which promises to pay some or all of the persons who
provide material, labor, or services for prosecution of a
contract.
Subdivision
Bonds
Subdivision bonds are different from more common performance
bonds used for construction projects. With subdivision bonds,
the owner of the project provides bonds to the public agency
to guarantee the installation of improvements that will ultimately
be dedicated to the public but paid for by the owner/developer.
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