The Importance of Surety Bonds in Construction Pt.2

Types of Bonds

The bid bond provides financial assurance that the bid has been submitted in good faith and that the contractor intends to enter into the contract at the price bid and provide the required performance and payment bonds.

The performance bond protects the owner from financial loss should the contractor fail to perform the contract in accordance with its terms and conditions.

The payment bond guarantees that the contractor will pay certain subcontractors, laborers, and material suppliers associated with the project.

Historical Perspective 
Surety bonds have been around since 2750 BC, when the historian Herodotus told of contracts of suretyship. The year 670 BC marked the execution of the oldest surviving written surety contract, a contract of financial guarantee.

While suretyship is an ancient practice, it wasn't until the latter part of the 19th century that the writing of surety bonds by corporations came into being. Since 1893, the U.S. Government has required contractors undertaking federal public work contracts to post surety bonds guaranteeing that they will perform such contracts and pay certain labor and material bills.

The federal law mandating surety bonds on federal public work is known as the Miller Act of 1935 (40 U.S.C. Section 270a-f). It requires performance and payment bonds for all public work contracts in excess of $100,000. Also, each of the 50 States, the District of Columbia, Puerto Rico, and almost all local jurisdictions have enacted legislation requiring surety bonds on public works. These generally are referred to as "Little Miller Acts."