A written agreement by which a 3rd party (surety/ bond company) guarantees an “obligation” (written contract) between 2 other parties (an obligee and an obligor). The obligor (aka the principal) purchases a bond from the surety company to guarantee fulfillment of its contract with the obligee (party requiring the bond).
What is a performance bond?
Guarantees that a ‘contract’ will be fulfilled.
What is a payment bond?
Guarantees that all subcontractors and material suppliers will be paid pursuant to the contract.
What is a contract bond?
Same as the performance bond above.
What is the cost of a performance bond?
Varies depending on credit worthiness and size of contract.
Generally around 3% for the first $250,000 contract amount.