Wednesday, May 28, 2008

Payment and Performance Bonds

Washington State law (RCW 39.08) requires that public agencies obtain a payment and performance bond for all public works construction projects.

Some agencies require a combination bond that has protection for both payment (the contractor will pay all subcontractors, suppliers, and workers) and performance (the contractor will faithfully perform and execute the work), while other agencies require separate bonds.

In either event, the amount of the bond is normally for 100% of the contract award amount. By obtaining a separate payment bond and a separate performance bond, each in the amount of 100% of the contract award amount, the agency actually ends up with more financial protection – 100% for each, while a combination bond is limited to 100%. It is my understanding that obtaining separate bonds for payment and performance normally does not cost the contractor more, but the agency gets additional protection.

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