6 Construction Bonding Facts Every Contractor Should Know

Oct 30, 2019


If you are a construction business owner or investor, you may already be familiar with construction bonds. Construction bonds play a crucial role in the bidding process for construction projects, but also reflect how well a contracting business operates its business and achieves its profitability. Having a strong public reputation is not only essential for winning more projects, but also for attracting more skilled and talented employees.


What Are Construction Bonds? Construction bonds are a type of surety bond implemented prior to the start of a construction project. The acts as a guarantee to the investor(s) or project owner(s) that the construction project will meet the specific parameters outlined in the contract.

A surety bond involves three parties to participate:

  1. Guarantor – An individual or organization (insurance/surety company) that guarantees payment to the obligee for any losses or debt incurred from the contractor.
  2. Obligee – The investor(s) and/or project owner(s) of the construction project.
  3. Contractor - The individual and/or business responsible for completing a specific construction project.

Constructions bonds protect the investor/project owner against financial loss and delays, due to any errors, lack of project management or failure to abide by the agreed terms on the contractor’s part. Employees, suppliers, sub-contractors and other clients involved in the construction project are also protected under construction bonds.


Construction bonds are available in a variety of types as well. Here are some more commonly used construction bonds:

Bid Bonds Bid bonds are used during the tendering process to help increase a construction business’ chances of winning a bid. The bid bond acts as an insurance to the investor or project owner that the contractor will start and complete the project if they win the bid. Bid bonds also inform the investor/project owner that the contractor is financially stable enough to follow through with the construction project they’re bidding for. Bid bonds are generally priced based on the scope of work, amount bid for the projects and terms of the construction project.

Performance Bonds Performance bonds are generally what most people think of when you think of construction bonds. They protect the project owner/investor from any financial loss if the work completed by the contractor is not up to standards, quality or specifications agreed in the initial contract. The performance bond would cover the cost to redo or repair any work that does fulfill the agreed terms.  

Payment Bonds Contractors use payment bonds to ensure their subcontractors and suppliers that they will be paid for their services and materials. They are used often used with performance bonds.


Why Are Constructions Bonds Important for Your Construction Business?

During the tendering process, investors and project owners will consider a number of factors when weighing your construction businesses over your competition. Aside from your bid price, offering a construction bond with your bid will reassure the project owner/investor that your business is financially viable and stable enough to carry out the work your business proposes in your agreement.

In order to qualify for construction bonds, the surety/insurance company must also evaluate the contractor based on their construction aptitude, resources, experience and reliability to carry out the specifications according to the contract. They also research a contractor’s financial statements, financial standing, credit rating and work history.

With such extensive research required to obtain a construction bond, investors/project owners can be confident that any contractor offering a construction bond is a legitimate and trustworthy company. Having a construction management software that helps generate bonding reports approved by surety companies will also expedite the bonding approval process for construction businesses. Jonas Construction clients can be confident that their Jonas generated reports are approved and readily accepted during the application process for construction bonds by Trisura Guarantee Insurance Company.

What is the Process for Applying for a Construction Bond?

Investors and/or Project Owners will often request for a construction bond prior to commencing a construction project to protect their investment. The process for applying for a construction bond can be quite lengthy and should be started as early as possible if you are unfamiliar with the application process.

  1. Decide on what category of construction bonds you will require for the project you’re bidding for. If an investor/project owner does not request for a bid bond during the bidding process, many contractors will simply wait until they are awarded the project to apply for the performance bond. From there, a contractor may also consider applying for a payment bond as well.
  2. Qualifying for Construction Bonds Every country will have their own legislative body, which governs the underwriting guidelines for qualifying for a surety/construction bond. You may want to consider researching a surety broker that will offer bonds nationwide or across North America to ensure you are protected for whatever area you work in. Contractors must submit an application and 
    questionnaire to determine their eligibility during the prequalifying stage.
  3. Be Prepared to Demonstrate an Organized and Profitable Contracting Business In addition to providing a well-written business proposal and scheduling of work for the proposed construction project, you will also want to provide the surety company concrete proof through valuable data and reporting. To help you save precious time and energy to organize such reports and data, many contracting businesses will invest in construction management software that not only helps them manage their business, but their project management as well. An all-in-one construction management solution should be robust enough to handle all areas of your business, including reporting financial and project statuses. If you are looking for a construction management solution, customized reports that present information on specific parameters and areas of your business are also indicators of a strong construction management platform.  Additional reports a surety company may review include WIPs (work in progress), forecasting reports, inventory reports, etc. A surety company will review applications based on these reports, which is why it is so important to ensure that the reports you submit are clear, accurate and sufficient.
  4. Get a Construction Bond Quote The price you pay for a construction bond will depend on how much you want to be bonded for. The more you wished to be bonded for, the higher the price. A surety company will be able to provide you with a quote based on the bonding amount you need. The premium you pay will be based on your financial standings; therefore, companies with better credit ratings may get a rate ranging anywhere from 1% to 5%, while companies with poor credit may pay up to 20%.

To learn more about Jonas’ bonding reports approved by Trisura Guarantee Insurance Company, leave us a comment below or speak to one of our account representatives.


Category: Operations

Add Pingback

Please add a comment

You must be logged in to leave a reply. Login »

Jonas Construction Software in 90 seconds

Category List

Tag List

software selection guide bundle1
Quickbooks software1
project management software2
onboarding construction industry1
construction BYOD3
software case study2
construction software for project managers12
mechanical contracting industry outlook1
support services6
best construction software4
construction project management software11
purchasing software1
construction accounting software13
software selection1
general contractor software2
contracting software1
construction scheduling software1
design build industry outlook1
hvac contractor software5
software selection guide3
software for design builders1
construction business management software13
construction service management software13
mobile solutions2
construction management software selection guide1
management software6
construction software functionalities1
construction software selection guide1
concrete construction software1
service and construction management software1
construction blog1
service management software1
position construction and service management software1
specialty contractor software2
mobile software solutions1
construction solution1
construction software for project management11
gps routing1
general contracting software2
construction guide1
construction software for service managers11
design build growth and survival guide1
mechanical contracting software3
construction software44
selecting construction software1
change management1
cloud-based software1
construction software selection process2
cloud-based construction software3
buying software1
construction software for owners13
software for contractors2
construction software for accounting8
IT strategic planning1
construction software case study2
mechanical contractor software5
point solutions1
software for electrical contractors1
construction bring your own device policy3
mechanical contractor growth and survival guide1
gps technology1
cloud software1
contracting business1
dispatch software1
mobile construction software4
technology roi1
mobile data1
general contractor growth and survival guide1
design build software2
construction reporting software1
automated construction software3
integrated software solutions1
construction document management1
success onboarding strategies1
construction management software40
construction management2
electrical contracting software2
mechanical con1
integrated software1
visualized reporting1
construction software blog6
construction software solution5
construction and service management software1
service management1
design build contracting software1
change management for IT implementations1
project management1
cloud software solutions1
electrical contracting industry outlook1
cloud construction software4
software vendors1
construction software solutions1
construction software features1
service software1
choosing the right construction software1
construction software buying guide2
position construction management software1
electrical contractor software3
electrical contractor growth and survival guide1
contracting website1
construction service software4
accounting software1
general contracting industry outlook1
software selection checklist1
contractor software8
IT implementations1
software selection process1
construction software for contractors4
hiring employees construction1
construction software implementation2
construction softare1
modern construction company3
construction software successful implementation2
construction software for service management11
migrate software1
integrated construction software4
bring your own device policy3
web-based construction software2
true cloud1
construction software for accountants8
enterprise business intelligence1
business intelligence2

Tag Cloud

concrete construction softwareconstruction software solutionelectrical contractor softwarebest construction softwareconstruction management softwaredesign build contracting softwarecloud-based construction softwarebring your own device policyconstruction software selection guidegps technologymobile databuying softwareconstruction service softwarechoosing the right construction softwareconstruction software for contractorscontractor softwareBYODconstruction software for accountingmechanical congeneral contractor growth and survival guideQuickbooks softwaretechnology roidesign build softwaredesign build industry outlookintegrated softwareelectrical contracting softwarecontracting softwarevisualized reportingconstruction softareelectrical contractor growth and survival guidemigrate softwareconstruction software for project managersconstruction software for accountantsgps routingconstruction software functionalitiesbusiness intelligenceconstruction solutionenterprise business intelligenceconstruction guideconstruction BYODmobile construction softwareautomated construction softwaresoftware selection processcontracting websiteinterviewconstruction software solutionsintegrated software solutionsgeneral contracting softwareconstruction business management softwareconstruction software successful implementationcloud construction softwareselecting construction softwaresoftware for design builderspurchasing softwarechange management for IT implementationsservice management softwarespecialty contractor softwareproject managementconstruction managementconstruction scheduling softwareaccountingtrue cloudconstruction software case studyconstruction management software selection guideconstruction software featuresgeneral contractor softwaresuccess onboarding strategiesposition construction and service management softwaredesign build growth and survival guidehiring employees constructiondispatch softwaresoftware selection guide bundlemechanical contracting softwaremodern construction companysoftware for contractorsconstruction and service management softwareelectrical contracting industry outlooksoftware selectionsoftware for electrical contractorssoftware selection checklistconstruction software blogmobile solutionsIT implementationssoftware vendorsconstruction software for project managementconstruction accounting softwaresoftware case studyconstruction softwareIT strategic planningservice and construction management softwaremechanical contractor softwaregeneral contracting industry outlookonboarding construction industrymechanical contractor growth and survival guideconstructionconstruction service management softwaremobile software solutionspoint solutionsconstruction software implementationconstruction software buying guideconstruction project management softwareconstruction document managementmechanical contracting industry outlookhvac contractor softwareconstruction reporting softwareconstruction software for service managerssupport servicesintegrated construction softwareweb-based construction softwareservice softwarecloud-based softwaresoftware selection guidecontracting businesschange managementconstruction software for service managementproject management softwareconstruction software for ownersservice managementcloud software solutionsconstruction bring your own device policyconstruction software selection processmanagement softwareconstruction blogcloud softwareaccounting softwareposition construction management software