In our last post on Construction Bonds, we’ll take a look at three other common risk-mitigation tools: Site Improvement Bonds, Subdivision Bonds and Supply Bonds. The first two are key components for residential and commercial construction projects. But there is one distinct difference. The Site Improvement Bond is only for existing structures. Subdivision Bonds are required for new structures. Let’s start with Site Improvement Bonds.

Site Improvement Bonds

These basically guarantee that a contractor follows applicable building codes and regulations when making improvements to an existing property. Site Improvement Bonds can cover an array of fixes and improvements, including things like sidewalk repair, storm drains, curbs and sewers. The bond will usually state the anticipated cost and duration of the project. On many projects, these bonds must be in hand before a contractor can get a construction permit or record a final parcel map.

Subdivision Bonds

These are for contractors building new subdivisions. The Subdivision Bond helps ensure that a project will be built according to contract and applicable laws and regulations. They cover most elements related to the construction project, including houses, gutters and streets. Contractors typically need these to file plats with a municipality before the project’s completion.

Supply Bonds

The Supply Bond is pretty straightforward. In essence, they ensure that supplies will be provided as per the contract. They also provide a degree of financial protection in the unlikely event that a supplier defaults. These bonds are often purchased during the beginning stages of contracting, in advance of the start of work.

The Market for These Bonds

The market for both Site Improvement Bonds and Subdivision Bonds has fluctuated in recent years. Housing developments have stalled or collapsed because of economic peril and a depressed housing market. The amount of the bond will change depending on the project. Bond premiums will shift based on that as well as on the financial and work history of the contractor. Underwriting for these bonds remains tight. Supply Bonds aren’t typically as costly as other Construction Bonds. But, like any other bond product, the final cost will depend on several factors, especially the applicant’s financial health and history.

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