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Using Bonds in Construction, by Corinne Maddox, CCM, CFM

Owners may require construction bonds to limit their construction risk. There are three basic bond types. Bid bonds protect the owner against a contractor who declines to accept a contract after being declared the low bidder. Payment bonds (or labor and material bonds) assure that the contractor pays their suppliers, subcontractors and laborers for the work. Performance bonds are the most common type used. These bonds protect the owner against a contractor who does not perform the work as required by the contract. If a contractor fails to live up to their commitment, such as failing to perform to the quality or time required, or goes out of business before completion, the owner can call the bonding company (or surety) who then is responsible to complete the work at no additional cost to the owner.

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