Three basic types of contract surety bonds:

• The bid bond assures that the bid has been submitted in good faith and that the contractor will 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 assures that the contractor will pay specified subcontractors, laborers, and material suppliers on the project. 

Bond Rates

Surety bond premiums vary from one surety to another, but can range from 1% to 3% of the contract amount, depending on the size, type, and duration of the project and the contractor. Typically, there is no direct charge for a bid bond. In many cases, a performance bond incorporates the payment bond and a maintenance period.
 
When bonds are specified in the contract documents, it is the contractor’s responsibility to obtain them. The contractor includes the bond premium amount in the bid and the premium generally is payable upon execution of the bond. If the contract amount changes, the premium may be adjusted for the change in contract price. Contract surety bonds are a wise investment – protecting public owners, private owners, lenders, and prime contractors from the potentially devastating expense of contractor and subcontractor failure.
 
Any contractor-whether in business for one year or 100, large or small, experienced or novice-can experience serious problems. Through the years surety bonds have held fast as a comprehensive and reliable instrument for minimizing the risks in construction.
From the Surety Information Office