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  • Writer's pictureNate Jones, CPCU, ARM, CLCS, AU

How do construction bonds work?

Construction projects can be a headache to insure, but that doesn’t mean it needs to be a headache for you. How do construction bonds work? Many projects require bonds to protect against things like unfinished work, non-payment, etc.

There are three main companies/people involved in a bond:

  1. The Principal - The company that has decided to purchase the bond. Many construction companies decide to purchase a bond to be considered competitive in their field. Don’t know which bond to get? Our Indiana insurance agents are available to help you 24/7.

  2. The Surety Company - The surety company will cover the principal by paying any claims against the principal. Wexford Insurance is a trusted surety bond insurance agency. We supply numerous types of bonds in Indianapolis and across the nation.

  3. The Obligee - The company that would be paid if there was a claim filed.

Everyone wants to be protected when there is a large project with multiple companies involved. Many projects will require bonds before they even accept a bid.

Let’s take a look at two examples of bonds that are usually required for a construction project:

  • Bid Bonds - Bid Bonds is a type of surety bond that protects a company when they bid on a contract. This bond guarantees that if your company’s bid is accepted, you will be able to complete the project because you have the capability and expertise to complete it. This decreases risk and builds trust between all parties.

A bid bond is replaced by a performance bond once the bid is accepted and your company begins to work on a project.

  • Performance Bond – Performance Bonds, also known as Contract Bonds, ensure that a project will be completed according to the contractual agreement.

Bond sizes depend on the size of the project. The percentage becomes lower as the cost increases.

Bonds can be difficult to understand and hard to navigate, but that’s why our agents are here for you. We will help you find what you need to be competitive in the construction field and be protected.

Call us at 317-910-9295 or click here for a free quote.

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