A contract bond, also known as a contractor bond, is a type of surety bond which guarantees that a job will be completed in accordance with the conditions set forth in the contract for that job.
Contract bonds are usually obtained by construction contractors to guarantee that if a job is not completed or the contractor defaults, the owner of the project will be compensated. Because they are mostly used in the construction industry, these bonds could also be referred as construction bonds.
Such bonds are required on all federal projects above $100,000 and on many state projects. Some private projects also require contractors to obtain contract bonds.
Different bonds are required for the different stages that a construction project goes through. For example, bid bonds are needed at the initial stage when contractors participate in a bid. Bid bonds guarantee that contractors will commence work on the project if they are awarded a bid, and that they will enter at the bid amount. They usually also guarantee that the contractor will post a performance bond when they are awarded the contract.
Contractor bond cost depends on the type of bond you need to obtain. Some bonds, like bid bonds, cost much less than most other bonds. The cost of your contractor bond will also depend on the amount that you need to get bonded for.
When determining your contractor surety bond rate your personal credit score will mostly be taken into account, especially for smaller bond amounts. Higher bond amounts usually require greater care and scrutiny on the side of the surety due to the higher risk involved.
You may therefore need to provide further financial documentation before your bond is underwritten. This includes personal and business financials, your cash on hand and even your industry experience.
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