Contract Bonds

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What is a Bid Bond?

A bond given to a Federal, State, County or Municipal Government agency at the time of a bid which guarantees the good faith of the Contractor (Principal), i.e. that if the Principal is awarded the contract the Principal will enter into the contract and post the required Performance and Payment Bonds. Bid bonds are typically required only as a percentage of the Principals bid, usually 10%.

What is a Performance Bond?

The Performance Bond follows the bid bond if the Principal (Contractor) was deemed low bidder and is awarded a contract. The Performance Bond guarantees that the contractor will complete the contract in accordance with the terms, conditions and specifications of the contract. The Performance Bond is required as a condition of being awarded the contract.

What is a Payment Bond?

A Payment Bond is usually required as a companion to the Performance Bond. The Payment Bond guarantees that material suppliers and direct labor suppliers will be paid. Though Payment bonds are typically separate documents they are issued for no extra charge, when required.