Chapter 2, Problem 1RQE

To determine

Write the three major types of construction bonds, its necessity, and mention three items that affect the bonding capacity.

Explanation of Solution

Names of three major types of construction bonds and their necessity:

Bid bonds:

It is a type of construction bond that safeguards a developer or an owner in a construction bidding process. It provides guarantee to the owner by a contractor to ensure if the contractor fails to honor the terms of the bid, the owner will be compensated.

Performance bonds:

A bond that is given to a contractor to guarantee the owner that the assigned work will be completed as per the requirements of owner with project specifications is a performance bond.

Payment bonds:

It is a surety bond that guarantees payments to subcontractors and material suppliers on the project that was bonded.

Three factors that affect the bonding capacity are as follows:

• Status of costs
• Payments
• Disputes related to uncompleted work