Homework SourseHow to compute the cost oand ond pertmance bond2 paument bon
Solution
Bid Bond
Contractors who submit bids usually are asked to
provide a bid bond. The bid bond states that the
contractor will enter into a contract when one is
offered and will provide bonding as required.<>Bid
bonds generally are written with a penalty equal to a
percentage of the contract price; usually 5%, 10%,
or 20%. They may also be written with a specific
dollar penalty. If an owner offers a contract to a
selected contractor and the contractor refuses to
enter into the contract, the owner may make a claim
against the bid bond for the difference between the
price of the contract in question and the price of a
substitute contract or the penalty of the bid bond,
whichever is less.
Maintenance bond
Maintenance bonds are used when an owner wants a
warranty period beyond one year. A warranty period
can be extended for an annual fee, but sureties gener-
ally do not go beyond a total of two or three years.
The annual fee for a maintenance bond is a fraction
of the cost of a performance bond.
Performance bond
Performance bonds guarantee to the owner that the
contractor will perform its contractual obligations in
accordance with the plans and specifications. These
bonds can take a variety of forms, ranging from the
very simple to the long and complicated. The cost of a performance bond usually is less than 1% of the contract price; however, if the contract is under $1 million, the premium may run between 1% and 2%. Bonds may be more costly, depending upon the credit-worthiness of the contractor.
Suppy Bond
Supply bonds guarantee that ordered materials will
be delivered. Such bonds generally are employed if
an item is critical, time-sensitive, hard to find, or
proprietary. Supply bonds may guarantee only a
purchase order, so the terms and conditions of that
order should always be carefully drafted. The cost of
these bonds is usually minimal.
Payment bond
Labor and material payment bonds are companions
to the performance bond. They assure the owner that
the labor, material, and subcontractor costs on the
job will be paid. This assurance is for the use and
benefit of all laborers, material suppliers, and
subcontractors who are eligible by contract or statute
for the protection afforded by the payment bonds.
They can also act as a way to protect the project from
liens.
Subdivision bond
Frequently, general contractors will require from
their subcontractors the same types of bonds required
by the owner. Generals may do this, for example,
when the sub trade is critical to the project, the sub’s
price was much lower than its competitors, the sub is
not well-known to the general, or the general’s surety
requires the bonding of some or all subs as a precondition to bonding the general.
