How does a construction bond work?

Bidding for a construction contract in Texas can be a complex process. A bidder can expedite it by guaranteeing that they will complete the project in a timely and cost-efficient manner. Most project owners will require that bids take the form of a construction bond.

The three parties involved include:

  • The project owner
  • The party bidding for the work
  • The surety company that guarantees the bond

What is a construction bond?

This bond will be required under the terms of Texas construction law. Its purpose is to guarantee the project’s timeline and budget.

A construction bond is also a guarantee that the project will meet the stipulations that have been covered in the contract. This is the best insurance that a project owner can have that all of the bills associated with construction will be paid.

Different types of construction bonds

There are three main types to take advantage of. A contractor will be required to submit a bid bond. This will protect the project owner in case a contractor backs out of the deal or neglects to provide a performance bid.

You may not care to submit a performance bid. You may be able to replace it in the contract with a performance bond. This bond will protect the owner in case the work is found to be shoddy or not in compliance with the terms of the contract.

You may also need to submit a payment bond. This is a stated guarantee that you possess the means to compensate all of your employees, subcontractors and suppliers. Any of these bond types can be chosen according to the needs of the situation and Texas state law.