May 19, 2012
If a contractor is the low bidder and awarded a project, the bid bond guarantees that the contractor will enter into a contract and furnish any contract bonds as required of him by the terms of the contract.
A performance bond guarantees that a contractor will perform under the contract within the terms of the specifications of the submitted bid.
A payment bond (or labor and material bond) guarantees that a contractor will pay for labor and material used in the prosecution of the work which he is obliged to perform under the contract.
License and Permit Bonds are bonds required by the government (federal, state, county, municipality) or other political subdivision. These bonds guarantee compliance with requirements and restrictions pursuant to a license granted and also protects the general public against monetary loss, physical damage or bodily harm. The bond is required for a specific activity the Principal wishes to engage in and usually holds the Obligee harmless.
Subdivision bonds guarantee governmental entities that a subdivider will put in roads and utilities in accordance with plans approved by the local engineer.
A supply bond is between a supplier and a purchaser, guaranteeing that the supplier will furnish supplies or materials per the specifications of a contract. If the supplier should default on the terms of the contract, the surety will indemnify the purchaser of the supplies or materials against any loss sustained as a result of the default.