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Contract Surety Bonds

Contract surety bonds protect the WCIA member if  a contractor defaults on a project.

Contract Surety Bonds

Surety bonds that are written for construction projects are called contract surety bonds. A project owner (the obligee) seeks a contractor (the principal) to fulfill a contract. The contractor, through a surety bond producer, obtains a surety bond from a surety company. If the contractor defaults, the surety company is obligated to find another contractor to complete the contract or compensate the project owner for the financial loss incurred.

Eligibility

All WCIA members are eligible to apply for a bond.   The approval of the bond will be contingent on the completion of an underwriting review. 

Eligibility is determined by but not limited to the review of the financial soundness of the principal, the indemnity to be provided,  and the obligation being undertaken by the principal. Additional documentation will be required.

Program Overview

There are four types of contract surety bonds:

  1. Bid Bond: Provides financial protection to the owner if a bidder is awarded a contract but fails to sign the contract or provide the required performance and payment bonds.

  2. Performance Bond: Provides an owner with a guarantee that, in the event of a contractor’s default, the surety will complete or cause to be completed the contract.

  3. Payment Bond: Ensures that certain subcontractors and suppliers will be paid for labor and materials incorporated into a construction contract.

  4. Warranty Bond (also called a Maintenance Bond): Guarantees the owner that any workmanship and material defects found in the original construction will be repaired during the warranty period.  

When do I need a contract surety bond?

Any federal construction contract valued at $150,000 or more requires surety bonds when a contractor bids or as a condition of contract award. Most state and municipal governments have a similar requirement. Many private owners also elect to require contract surety bonds.