A bid bond is used when a contractor (the principal) is bidding on a tendered contract.
It prequalifies the principal and provides security to the owner or general contractor (obligee) that the principal will, in fact, enter into a contract if it is awarded.
A bid bond guarantees that the obligee will be paid the difference between the principal's tender price and the next closest tender price in the event that the principal is awarded the contract but fails to enter into the contract with the obligee. The bid bond penalty is generally limited to ten percent of the bidder's tender price. Contractors like bid bonds because they are not expensive and do not tie up their cash or bank credit lines during the bidding process. Owners and general contractors like bid bonds because they establish that the bidding contractor or supplier has the support of a surety company and is qualified to undertake the project.
A surety's consent may be used, together with a bid bond, when a contractor (principal) is bidding on a tendered contract. A surety's consent provides a Guarantee to the owner or general contractor (obligee) that if the principal is awarded the contract then the surety company will, in fact, issue the required final bonds in support of the principal.
A performance bond is issued by the surety at the request of a contractor (principal) that must provide a performance bond when signing a new job contract with an owner or general contractor (obligee).
The performance bond provides security to the obligee that the job will be completed according to the terms of the contract. The bond guarantees to the obligee that, should the principal fail to perform the contract, then the surety will either complete the contract, pay for the cost of completion in excess of the contract price, or pay the bond penalty.
A labour & material payment bond is issued by the surety at the request of a contractor (principal) that must provide a labour & material payment bond when signing a new job contract. This bond provides security to sub-contractors and suppliers that they will be paid according to the terms of their contracts.
Owners request labour & material payment bonds because subcontactors and suppliers can provide better pricing on contracts with labour & material payment bonds as they eliminate the risk of non-payment.
A Maintenance Bond provides security to the project Owner (Obligee) that the Contractor (Principal) will maintain and repair the project according to the terms of the contract for a specific period of time after its completion.
A lien bond provides security to a court (obligee) that a contractor (principal) will honour claims made by its suppliers and sub-contractors for payments owing to them for work done on a project in the event the court determines that such claims are valid.
A supply bond provides security to the project owner (obligee) that certain materials will be delivered by the supplier (principal) according to the terms of the contract.
The conditions of the bond are similar to the performance bond except that the obligation is for supply only.
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