What is an Iowa Contract Bond?
A Contract Bond or Construction Bond is required for individuals or business entities to ensure the following:
- The faithful completion of a contract in a manner that is approved by the obligee or the owner of the construction project
- To protect the obligee or compensate the obligee if needed.
Both private and government construction projects require a surety bond. In the case of government construction projects, the federal Miller Act requires that a bond is secured for projects exceeding $100,000.
The parties involved in an Iowa Contract Bond are:
Principal – This will be the contractor who will be securing the bond from the Surety Bond Company
Obligee – The Obligee is the owner of the construction project to whom the bond is secured
Surety – This will be the surety bond company that will shoulder the payment to the obligee in case the principal doesn’t fulfill his obligations
Types of Contract Bonds
A Contract Bond is further subdivided into different types. The primary contract bonds used in a construction project are as follows:
A type of surety bond wherein the surety guarantees the obligee or the construction project owner that the principal will execute the contract awarded to him.
In the case of non-compliance, if the principal abandons the project, the surety assures the construction project owner that he will be paid for the difference between the principal’s bid and the lowest amount the contract may be awarded.
The surety guarantees the obligee that the principal will fulfill his contractual duties. If the principal fails to do so, the surety will pay the obligee the performance cost’s excess amount.
The surety will assure the obligee that the principal’s construction workers, suppliers, and subcontractors will be paid. In most states, a payment bond is referred to as the Little Miller Act.
Other Types of Contract Bonds
A warranty that will cover any defective materials used in the project or substandard workmanship for one year after the project’s completion.
A guarantee that the necessary supplies needed for the construction project will be delivered on time.
A guarantee that the subcontractor will fulfill his contractual obligations to either the prime contractor, the obligee, or both.
What is the Surety Bond amount?
Both the amount of the bond and the conditions will depend on the full amount of the contract and the type of bond.
The Bid Bond amount is usually 5% up to 10% of the full contract amount. Performance bond amount, on the other hand, starts at 2.5%, while a Payment Bond’s minimum amount is 3% of the contract amount.
If you want to get a tailored quote for your project today, you may obtain a FREE quote here!
How can I obtain this Surety Bond?
You must first determine the kind of bond that your client requires. Once you have established that, you must submit a bond application.
The next step would be the underwriting process. An underwriter will evaluate pertinent information such as your financial history, construction company history, and your credit score.
Once that’s been satisfied, we will execute the bond and send it to you immediately.
Ready to get started on this bond? Please feel free to contact us! We look forward to partnering with you!