Text Size:   A+ A- A   •   Text Only
Find     
Risk Management

Bonds
Type of BondGuarantee of BondComments
Bid Bond
  • Guarantees that a Contractor bidding for a contract will, if the bid is accepted, enter into a contract and furnish all bonds required to complete the project including performance, payment and maintenance bonds. Or, if the Contractor refuses to enter into a contract, the surety will pay you the difference between the amount of the bid and the bid finally accepted.
  • Can protect the state if the Contractor makes a mistake in bidding the project. If the Contractor leaves out an important portion of the project in the bid, and the bid is subsequently accepted, the surety would be obligated to pay the difference between what was bid and the actual cost to complete the project.
Performance Bond
  • Guarantees that work will be completed according to the contract terms and conditions.
  • The key bond on a work project when state agencies not only want the work completed but want it to be done on time and according to specifications. If the Contractor does not keep either of the promises, the surety is obligated to satisfy the state.  Builders' Risk and Commercial General Liability Insurance do not cover this exposure.
  • Use in contracts for goods or services if the time of delivery of goods or performance of services is critical.
  • The dollar amount of the bond depends on the costs necessary to complete or put the project back on track. Note: Some types of contracts require bonds at 100% of the contract. Contact DAS Purchasing for more information.
  • The cost of a bond to the Contractor is based upon the surety's assessment of the Contractor's loss experience, assets and finances. Bond terms are usually 12 months.
  • The Surety wants to minimize likelihood of default by checking out the Contractor’s reputation, ability and financial condition before writing the bond. Therefore, a performance bond may provide better assurance the Contractor is reputable and qualified to perform the job. 
Payment Bond (Labor & Materials Bond)
  • Guarantees that all suppliers of labor or materials for the project are promptly paid and that no liens will be filed against the state.
  • Use in contracts for goods or services to ensure that the Contractor has made timely payment for materials and wages related to the project.
  • Many times, a payment bond is included in a performance bond. However, it may be purchased separately.
Maintenance Bond
  • Guarantees faulty work of the Contractor will be corrected or defective materials will be replaced. 
  • A performance bond sometimes includes the maintenance guarantee for a period of one year without additional charge.
Note: Bonds are written by an insurance company called a Surety. A Surety guarantees that the Contractor will satisfy specified contract obligations. Bonds can be used with contracts that involve construction or any other type of work or service required by state agencies.
 
Revised 4/03