Construction bonds are a type of surety bonds. Now the question that arises in the mind is “what does one mean by the term surety bonds?” In very simple words, it means an agreement or a contract between the three parties involved in the project. To name them, these three parties are as below:
Construction bonds are also known by the name of contract bonds and it is a kind of guarantee to the party concerned that the project will be accomplished during the specified time limit without a saying. These bonds can be used in multiple situations but majorly used for the construction projects wherein one party assures the other that the third party will surely and certainly complete the project within the specified time limit and not falter with regards to that. This is the reason why they have been named construction bonds.
It is in fact a kind of guarantee to the first party by the third party that the second party will complete the project and bring it to an end without incurring any kinds of financial losses in the absence of its completion by the concerned parties. The need for these bonds arises in case of public works being carried out by the government agencies. Nowadays, even the private organizations too are requiring the same for the safety and security of their projects. Thus, they are been used by both the public as well as the private organizations in total.
These bonds come in different types depending on the project and its various stages and thus makes it sure that the project is completed either on or before the stipulated time period. All this happens as per the contract and thus making the contract is mandatory and must not be avoided at any costs for any of the reasons at any point of time.
Most common types of construction bonds are listed as below:
- Bid Bond
As the very names suggests, these bonds relate to the bids associated with a project and thus its completion depends on the same. This surety bond makes it sure that the contractors in the construction projects offer serious and somber bids to the other party and thus clear the very picture of the project developer and not make him a villain in case of non commitment of the bid in any form.
- Performance Bond
This surety bond relates to the performance of the project being talked about and the parties involved. It very clearly states that in the absence of non performance the contract will be assigned to some other party who is able enough to handle the project and bring it out in much better manner as compared to the older party.
- Supply Bond
This bond corresponds to the purchase order or agreement and holds importance for the project suppliers and the material and equipment involved.
These construction bonds come in some other categories too and hold different purposes as per their name and thus used accordingly in the true sense of the word.