Type of Bonds

For public construction contracting, there are a variety of bonds to be aware of:

1) Bid Bond. A guaranty by a bonding company that the bidder will enter into a contract with the owner if awarded the project. Normally, these bonds are in the amount of 5% of the amount bid, and they serve to compensate an owner if a bidder fails to enter into a contract if awarded the contract.

2) Payment Bond. A bond issued by a bonding company guaranteeing that the bonding company will ensure that a contractor will pay its subcontractors and suppliers. This bond is normally in the amount of 100% of the amount of the contract award. RCW 39.08.

3) Performance Bond. This bond is often issued in conjunction with a Payment Bond and thus the bond serves a dual purpose guaranteeing both payment (see above) and that the contractor will perform and complete the work. If the contractor fails to perform and complete the project, an owner may turn to the bonding company to have them complete the work through hiring a contractor. RCW 39.08.

4) Retainage Bond. This bond may be submitted by a contractor in lieu of the owner withholding 5% of each progress payment to the contractor for retainage. The bonding company guarantees to pay any claims that would otherwise be due under actual retainage withheld by the owner. RCW 60.28.

5) Contractor's Registration Bond. Every contractor registered as a contractor in the State of Washington is required to post with the Department of Labor and Industries a bond. A general contractor must post a $12,000 bond, and a specialty contractor (one trade only) must post a $6,000 bond. RCW 18.27.