Construction contracts often require additional financial protection before work can begin, payments can be released or infrastructure can be adopted. This protection may be provided through a construction surety bond. However, not every bond serves the same purpose. The type of bond requested will usually depend on the underlying contract, the work being undertaken and the requirements of the party seeking protection. Understanding the different types of construction bonds can help contractors and developers prepare earlier, avoid unnecessary delays and ensure the correct guarantee is in place.
1. What is a construction surety bond?
A construction surety bond is a financial guarantee that supports a contractual obligation.
It normally involves three parties:
- The principal: The contractor, developer or business responsible for meeting the obligation.
- The beneficiary: The employer, developer, local authority, water company or other organisation receiving the protection.
- The surety provider: The organisation financially backing the guarantee.
If the principal fails to meet the obligations covered by the bond, the beneficiary may be able to make a claim, subject to the wording and terms of the bond.
A surety bond is not the same as a traditional insurance policy. It protects the beneficiary against a specified failure by the principal rather than providing general protection against the everyday risks associated with a construction project.
The following sections explain some of the construction bonds that may be requested and the obligations they are commonly used to support.
2. Performance Bonds
A Performance Bond provides financial protection if a contractor fails to meet its contractual obligations.
It is commonly requested by employers, developers, funders and main contractors as part of a construction contract. If the contractor defaults or becomes insolvent before completing the agreed work, the bond may provide compensation to the beneficiary, subject to its terms.
Performance Bonds are often set at an agreed percentage of the contract value. However, the required amount, duration and wording will depend on the individual contract.
A performance bond may be requested where:
- It is a condition of a construction contract.
- You are bidding for a public or private-sector project.
- The employer requires protection against contractor default.
- A funder or other stakeholder requires additional security.
- You need to demonstrate financial credibility during a tender process.
Because Performance Bonds are linked closely to the underlying contract, it is important to review the proposed bond wording and requirements as early as possible.
Related guide: https://checkmate-warranty.co.uk/what-is-performance-bond/
3. Advance Payment Bonds
An Advance Payment Bond protects money paid to a contractor or supplier before the corresponding work, materials or services have been delivered.
Advance payments can help contractors purchase materials, manufacture specialist components, mobilise a workforce or cover other significant upfront project costs. However, releasing funds early creates a financial risk for the paying party.
An Advance Payment Bond helps manage this risk. If the contractor or supplier fails to meet the agreed obligations, the bond may allow the beneficiary to recover the protected advance payment, subject to the bond terms.
An advance payment bond may be requested where:
- You are receiving a substantial payment before starting work.
- Bespoke or high-value materials must be ordered in advance.
- Components are being manufactured off-site.
- The employer requires security before releasing mobilisation funds.
- The contract specifically makes an Advance Payment Bond a condition of payment.
The value of the bond will usually reflect the amount being advanced. Depending on the agreement, the bond value may reduce as materials are delivered or the advance payment is recovered through interim valuations.
The bond wording should reflect the payment arrangements clearly, including when the guarantee begins, how its value may reduce and when it will expire.
4. Road Bonds
Road Bonds are commonly associated with agreements covering roads and other highway works that may eventually be adopted by a local highway authority.
For example, a Section 38 agreement under the Highways Act 1980 can be used where a developer constructs a new road that is intended to become a publicly maintained highway. The relevant authority may require a bond or another form of financial security before the agreement is completed.
The bond protects the authority against the risk that the developer fails to complete the required highway works to the agreed standard. If the works are left unfinished, the bond may provide funds that allow the authority to complete or remedy them.
Local-authority requirements can vary, and the value of the bond will normally be connected to the estimated cost of completing the relevant works.
A road bond may be requested where:
- Your development includes a new road intended for adoption.
- You are entering into a Section 38 agreement.
- You are carrying out work to an existing highway under a Section 278 agreement.
- The local authority requires financial security before works commence.
- The development includes related infrastructure such as footpaths, drainage or street lighting.
The surety provider and proposed bond wording will generally need to be acceptable to the relevant authority. For this reason, developers should establish the authority’s requirements at an early stage.
5. Sewer Bonds
Sewer Bonds support the completion of drainage or sewer infrastructure that is intended for adoption by a water or sewerage company.
A Section 104 agreement under the Water Industry Act 1991 can establish the terms under which newly constructed sewers may be adopted at a future date. As part of the agreement, the sewerage company may require a bond to cover the cost of bringing the infrastructure up to an adoptable standard if the developer does not complete the work.
A sewer bond may be requested where:
- Your development includes new sewer infrastructure.
- The sewers are intended to be adopted by a water or sewerage company.
- You are entering into a Section 104 agreement.
- The adopting company requires security against incomplete or defective work.
- A bond is required before the adoption agreement can progress.
The requirements, bond amount and release process will depend on the adopting company and the specific agreement.
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Are other types of construction bonds available?
Yes. Depending on the contract and project, other forms of surety may be requested.
- Retention Bonds
- Payment Bonds
- Sectional Completion Bonds
- Maintenance Bonds
- Bid or Tender Bonds
The names and requirements can vary between contracts. It is therefore important not to rely on the bond title alone. The underlying obligation, beneficiary, required value, duration and proposed wording must all be considered.
If you have received a bond request that does not fit neatly into one of the categories above, Checkmate can provide factual information about the bond solutions available and arrange a quotation based on the requirements supplied by you or the beneficiary.
How is the required construction bond identified?
In most cases, the type of bond required will be specified by the employer, beneficiary, local authority, water company or another party to the relevant agreement. The requirement may be set out within:
- Tender documents
- Building contracts
- Funding agreements
- Development agreements
- Employer’s requirements
- Local-authority agreements
- Water or sewerage adoption agreements
Before applying, establish:
- Who requires the bond?
- What obligation needs to be guaranteed?
- Who will be named as the beneficiary?
- What bond value is required?
- How long must the bond remain in place?
- Has specific bond wording been provided?
- Is the proposed surety required to meet particular criteria?
Obtaining this information early makes it easier to approach the right surety provider and reduces the risk of delays or unsuitable wording.
What information is required for a construction bond quotation?
The exact requirements will depend on the type and value of the bond, but you may be asked to provide:
- The proposed bond wording
- The underlying contract or relevant agreement
- The contract value and required bond amount
- Project details and programme
- Information about the beneficiary
- Latest filed accounts
- Current management accounts
- Details of existing bond commitments
- Work-in-progress information
- Evidence of experience on comparable projects
- Details of any previous claims, disputes or contract terminations
Larger or more complex requirements may require additional financial and project information.
Providing complete and accurate information from the outset can help the surety assess the requirement more efficiently.
Why should you arrange a construction bond early?
Leaving a bond application until immediately before contract signature, payment or site commencement can create avoidable pressure.
Starting the process early allows time to:
- Review the proposed wording.
- Identify information required by the surety.
- Address questions about the contract or financial position.
- Confirm that the proposed surety is acceptable to the beneficiary.
- Negotiate amendments where required.
- Ensure the bond is ready when the contractual obligation takes effect.
For contractors tendering regularly, discussing future bond requirements can also help establish an appropriate surety facility rather than treating each bond as an isolated request.
Speak to Checkmate about a bond quotation
The bond requested should reflect the obligation set out in the relevant contract or agreement—not simply the general name used to describe it.
Checkmate provides factual information about a range of surety solutions, including Performance Bonds, Advance Payment Bonds and Road and Sewer Bonds.
If a bond has been requested as part of a tender, contract or infrastructure agreement, our team can review the information provided, explain the available product features and arrange a quotation based on the stated requirements.
