Who Pays for a Construction Bond?

If you are required to purchase a construction surety bond, you are responsible for paying for the bond.

This can get a little more nuanced so let's look at different situations and how things tend to work in the big picture.

Bid and Performance Construction Bonds

The two most common types of surety bonds for a construction project are the bid bond and the performance bond.

The bid bond is required so you can bid on a project. The purpose is to protect the project owner from contractors who underbid.

The performance bond is required after a project is won. This bond protects the project owner from a contractor who fails to follow the contract or fails to complete the project at all.

In most cases when a contractor is getting approved for these surety bonds, they will get pricing for each and work the cost of them into their overall bid of the project.

Bid bonds don't really cost anything. We charge $100 no matter the size of the project. And if you win the project, we apply that $100 to the cost of your performance bond.

The performance bond is typically priced at 3% of the project cost.

Depending on the cost of the project this can get expensive. And that's why the cost is worked into the bid of the project.

This way the contractor will recoup the cost of the bonds and not take that as a direct hit on the estimated income for the project.

Other Construction Bonds

There are other bonds that you may need to obtain like:

• Payment bonds
• Maintenance bonds
• Retainage bonds

Click here to learn what these construction bonds cover.

You'll know you need these bonds before the project is fully awarded. So again, most contractors will try to work the cost into the bid.

Bottom line, you as the general contractor are responsible for paying for the surety bonds you need. How you obtain the money to pay for the bonds is up to you and how you want to structure the deal if you win the project.

Keep in mind that even if you're a subcontractor on a large project you might have to purchase a bond as well, like a performance bond. Whenever you're required to purchase a bond, you are the party responsible for purchasing the bond.