Contract bonds guarantee the performance of the terms and conditions of a contract. Types of contract bonds include bid bonds, payment and performance bonds, completion bonds and supply bonds.
Bid bonds guarantee the signing and acceptance of a contract, if the contract is awarded to the principal. Bid bonds also guarantee the issuance of a performance bond if the contract is awarded to the principal.
Performance bonds guarantee that the principal will complete the drawn contract. Payment bonds guarantee completion of the obligation, free and clear of liens and encumbrances. Payment bonds are also called labor and materials bonds.
Completion bonds are used when money is borrowed to fund the completion of an obligation. A completion bond is a guarantee to the lender that the money borrowed by the principal will be used to complete the obligation, free and clear of liens and encumbrances.
Supply bonds guarantee that suppliers of materials needed to perform an obligation will provide the materials.