Bonds & Surety

Performance and payment bonds are surety that guarantee the completion or performance of projects by contractors. There are usually three parties involved in these agreements.

  • The Principal - a contractor that is hired to perform under a specific contract
  • The Obligee - the party for whom the bond will benefit if there is a contract/construction default (typically the project owner)
  • The Surety - the surety company (often an insurance company) that guarantees the bond

Construction project owners will often require contractors to provide a performance bond in order to secure a project contract.  If the contractor fails to perform the work, the owner (the obligee) can turn in a claim to the surety company to either correct the issue or collect payment from the performance bond up to the limit of the bond amount.

It is important to note that bonds are not insurance, and in the event of  a bond claim, the surety company will expect reimbursement from the principal/contractor for the loss.

Surety companies generally require collateral and documentation providing evidence that the contractor or prospective bond principal is in good financial standing, which can sometimes make a bond difficult to obtain, especially for bond amounts over $500,000.  Bonding rates vary depending on the contractor's credit and financial standing along with the size of the bond. Larger bonds can have rates that are slightly over 1% where smaller bonds can have rates in excess of 3% of the contract amount.

When performance bonds are issued, payment bonds are usually issued simultaneously. The payment guarantee ensures the payment of materials for the job by the contractor.  If the contractor fails to pay for materials, the surety company will be required to pay for them, and will in turn require reimbursement for this payment from the contractor.

At Front Range Insurance Group, we have excellent relationships with a variety of top-rated surety companies and the expertise to secure the construction bonds that you need.  We take great pride in the bonding options that we provide.

For more information about bonding options:

Contact Us