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Owners & Developers Surety

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08/10/2023 · 2 minute read

Surety bonds provide owners and developers with financial security and construction project confidence.

This is because surety bonds act as a risk transfer mechanism, with the surety company assuring the project owner or developer that the contractors employed on their project will perform a task or body of works in accordance with the contract documents.

The risks of project non-completion are shifted from the owner to the surety company. For that reason, many owners require surety bonds from their contractors to protect their company and shareholders from the potential cost of contractor failure.

Two of the most common types of contract surety bonds are:

  • Bid bonds: assures that the bid has been submitted in good faith and that the contractor will enter into the contract at the price bid and provide the required performance and payment bonds.
  • Performance bonds: protect the owner from financial loss in the event that the contractor fails to meet the terms and conditions of the contract agreed with the project owner.

Obtaining bonds is the responsibility of the contractor, which includes the bond premium amount in the bid. The premium is generally payable upon execution of the bond.

Benefits to owners

Surety bonds help provide protection to the project owner because:

  • The contractor has undergone a rigorous prequalification process and is judged capable of fulfilling the obligations of the contract
  • The surety company will fulfil the contract in the event of contractor default

Any contractor can experience serious problems. It’s for this reason that surety bonds remain a comprehensive and reliable way of mitigating owner risks in the construction industry.

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