Surety bonds, frequently referred to just as bonds or bonding, are a guarantee from the bonding company that, should the bonded contractor default on a contract, the bonding company will step in to ensure the contract is fulfilled. There are generally four different types of surety bonds:
- License Bonds ensure that a licensed contractor will complete all projects in a reasonable manner. These are required by the Arizona Registrar of Contractors as a condition of licensing. They are general bonds issued to contractors and are not attached to specific projects.
- Bid Bonds ensure that the bid has been submitted in good faith, and the contractor submitting the bid will accept the contract at its bid price.
- Performance Bonds ensure that the contractor will complete the contract.
- Payment Bonds ensure that the contractor will pay all subcontractors, laborers, and others owed for work or materials related to the project.
ADOT typically requires bid, payment and performance bonds from firms bidding construction contracts. ADOT typically does not require subcontractors to provide bonding for a project, but some prime contractors might require it.
The size and type of bond you need (and whether you need a bond at all) depends on the project you are undertaking, and whether you will be acting as the prime contractor for the project. ADOT typically specifies the required bonding for a contract in the invitation to bid. ADOT also has requirements concerning the surety that issues the bond. The cost and size of the bond you can obtain depends on a number of different things, including
- references and reputation.
- prior experience.
- demonstrable ability to meet project demands.
- current financial situation.
- equipment owned/available.
- credit history.
- established bank relationship.
In addition to the primary benefits of having a surety bond, having obtained bonding might indicate to customers that your firm is competent and capable of successfully completing a contract.
You can learn more about surety bonds from this brochure and on the Surety & Fidelity Association of America (SFAA) website.
Surety bonds are required by law on federal construction projects. You can learn more about this on the SFAA website.