Contractor Bonds

Performance and Payment Bonds are Surety Bonds that are issued by a Surety Company which in most cases is an Insurance Company. They guarantee the completion or performance of projects by contractors. There are usually three party's involved in these agreements.

  • The Principal - A contractor that is hired to perform under a specific contract.
  • The Obligee - The party for whom the bond will benefit if there is a contract/construction default.
  • Surety - The insurance company or Surety who guarantees the bond.

The General or Subcontractor may be required to to provide a Performance Bond for the Project Owner or a General Contractor to secure a contract. If the contractor fails to perform the work, the Owner or ( Obligee ) will turn in a claim to the Surety Company to correct a problem or collect a payment from the bond up to the limit of the bond amount.

Bonds are not insurance and if there is a claim the Surety will expect the contractor to repay the Surety for the loss. Performance and Payment Bonds can be difficult to obtain as the Surety wants a certain amount of collateral and good financial information in order to provide the bond. For larger bonds over $ 500,000 good financial presentation is critical in order to obtain the bonds. In these economic times, more construction projects are requireing bonds than in the past. Bonding rates vary depending on the Contractors Credit and Financial Standing and also the size of the bond. Larger bonds can have rates that are slightly over 1% where smaller bonds can have rates in excess of 3% of the contract amount.

When Performance Bonds are written, Payment Bonds are usually written as well. While written in conjunction with Performance Bonds, Payment Bonds are seperate and insure the payment of materials for the job by the contractor.  If the contractor fails to pay for materials the Surety will be required to pay for them, and will then require the contractor to pay them back for the loss. 

At Front Range Insurance Group we have numerous bonding markets and the expertise to provide you with your required bonds.  We take great pride in the bonding options that we prvide. Call or email us anytime with questions regarding our bonding services.