What is a payment bond?

A payment bond ensures that all of a contractor’s laborers, subcontractors, and suppliers are paid on a particular project.

Who requires payment bonds?

Payment bonds are required on almost all public projects. General contractors sometimes require them of their subcontractors, and occasionally private owners will require them.

Who pays for a payment bond?

The contractor, or principal, purchases the bond and pays for it.

Do Payment bonds expire?

Payment bonds expire after the project is completed and statutory timeframe have lapsed.

What is the difference between a surety bond and a payment bond?

A payment bond is a type of surety bond. The only real difference is the qualifying term, in this case, it's "payment" and only notes what sort of surety bond it is.

What does a performance bond cover?

The performance bond covers the owner of the project against losses if the contractor fails to deliver on the project within the contractual provisions.

How long does a performance bond last?

Since performance bonds guarantee the completion of the contract, they last until the project is finished along with any required warranty period included in the agreement.

When can you release a performance bond?

Usually, a performance bond is released when the project is completed, though some public projects stipulate that a contractor gives a warranty following completion that the performance bond covers.

What is the difference between a performance and a payment bond?

We have a detailed article that explains the differences here , but the short answer is that the performance bond secures the contractor's promise to complete a job within the terms and conditions outlined at the agreed price while the payment bond protects subcontractors, vendors, and laborers against nonpayment.

What is the difference between a bid bond and a performance bond?

Bid bonds are required when contractors bid a project and guarantees if they are low bidder, they will enter into the contract and provide any required performance and payment bonds. Performance bonds guarantee the actual performance of the work to be completed by the contractor according to the terms of the agreement. What happens to a bid bond after a contract is signed? The bid bond is replaced by a performance bond if the bid is accepted and the contractor enters into a contract with the owner or general contractor.

California Surety Bonds

What is a Surety Bond?

A surety bond is an important part of many construction projects. Being vital to doing business as a contractor, it’s important to understand what surety bonds are and how they work. Here at Commercial Surety Bond Agency we invest in California contractors and endeavor to see them grow. As part of that effort, we work to improve the financial literacy of those in this industry by making available necessary information, such as with California surety bonds.

A surety bond is a three-party agreement that legally binds the principal, an obligee, and a surety company. The principal is the contractor who needs the bond, the obligee is the project owner or general contractor who requires the bond, and the surety company provides the surety bond service.

How Does a Surety Bond Work?

Essentially the bond guarantees that the principal will fulfill the obligations of the contract. If they fail to do so, the surety bond will cover the damages and losses. The simplest way to put this is that if a contractor doesn’t complete the project or pay their subcontractors, vendors, or laborers then the surety bond will pay via a claim made.

You’ll likely find a surety bond is required for public construction projects using tax dollars. Having this condition for bidding on a job helps protect taxpayers as well as those working on the project.

If you have any questions about our California surety bond services or wish to partner with CSBA for your contractor bond needs, we invite you to contact us.

Surety Bond Requirements

Surety bonds for construction projects, such as bid bonds and performance and payment bonds, have fairly similar requirements , and in general, surety bond requirements revolve around:

The contractor’s experience
The financial capability of the contractor’s business
The track record of the contractor
The ability to handle the project a contractor is being bonded for

To explore each of the factors surety bond companies look at for each particular bond, we encourage you to visit the individual bond pages for more in-depth details.

Where Should California Contractors Get Bonds?

Where California contractors go for their bond needs may not seem like an important decision, but the cost of missed opportunities for projects due to a poorly executed bonding process can have big consequences resulting in lost revenue and profit:

An Insurance Agent

Some insurance agents may be able to get you the surety bonds you need for a project, but they often don’t have the professional experience to create a smooth bonding process. An insurance agent isn’t professionally dedicated to surety bonds, and that lack of knowledge can cause the process of getting a surety bond to be much slower and more cumbersome. With their expertise being in other areas, insurance agents aren’t able to form the same quality relationships with surety companies or have the industry connections that a dedicated surety agent can to help a contractor get better premiums and larger bonds

A Surety Specialist

Surety agents are surety bond specialists, handling bonds exclusively. Due to this professional dedication to one thing, they are able and driven to form good working relationships with surety providers and can better match California contractors to the right surety company for their business and what it needs. These relationships also give surety agents access to special programs, making premiums lower and enabling them to provide unique resources that help to grow bonding capacity, as well as grow your company.

As a surety specialist, we at CSBA are dedicated to our contractors success by helping them navigate the bonding process and achieve their goals.

Bonds FAQs

What are the types of surety bonds?

The three most common types of surety bonds are:

Are surety bonds paid monthly?

No. You don’t pay month-to-month for sureties. When you are quoted a price for a surety bond, you make a one-time payment.

How do I apply for a surety bond?

Applying for a surety bond, no matter the sort of bond, is to contact a surety agency. For instance, you can reach CSBA here to get started on obtaining your surety bond.

Get a surety bond quote now

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