Understanding project bonds is an important part of becoming a licensed contractor in Arizona. Some people tend to get confused when it comes to the various construction project bonds, so it helps to refresh your memory whenever you need to. Read on for a brief overview of the different types of construction project bonds. 

Performance

Known as a type of indemnity bond, a performance bond is used to protect the owner in the event that the contractor does not fulfill the terms outlined in the contract. If the contractor is hired to complete a certain project and does not complete the job, a performance bond will ensure that the owner receives the proper compensation in order to have the project finished. Additionally, this bond allows the owner to have any defective work corrected.

Bid

Like a performance bond, a bid bond is another type of indemnity bond. This type of bond is used when a potential client puts out a request for proposals; if the contractor wants to complete a job, a bid bond will be submitted . When several contractors submit bids for the project, the owner looks at these bids as promises to perform the work, and a bid bond will ensure that the work is done in case the bid is withdrawn. A bid bond is used to protect the solicitor of proposals in case the chosen contractor decides not to perform the work.

Payment

Whereas performance and bid bonds are designed to protect owners, it is subcontractors and those who supply materials who use payment bonds. These are typically used when the project costs a certain amount of money, and ensure that the contractor will pay the subcontractor the appropriate amount. A payment bond is another kind of indemnity bond.

For more information about the different types of construct project bonds, contact Arizona Contractor License Center or visit our website. We provide contractor test preparation and company setup in the Mesa area. Please do not hesitate to stop by or call us at (866) 414-1925 to find out more about what we can do for you.