Reviewed September 7, 2026.
Construction bonds serve different purposes. Obtain the executed instrument and identify the principal, surety, protected parties, covered contract and claim conditions before relying on one.
- Payment bonds protect eligible unpaid labor or material claimants. Coverage and notice requirements depend on the bond and governing law; they do not automatically protect every contractual tier or eliminate all lien rights.
- Performance bonds address the contractor's covered default. Notice, owner performance, termination and the surety's contractual options may matter. A surety does not necessarily have to hire a replacement contractor immediately.
- Bid bonds secure specified bidding obligations, commonly execution of the awarded contract and furnishing required bonds. The solicitation determines when they are required.
- Maintenance or warranty bonds address specified post-completion obligations for the period and conditions stated in the bond.
- Lien-discharge bonds substitute security for a lien when the governing statutory requirements are met. Under Lien Law § 19(4), the private-improvement undertaking is generally 110% of the lien and must be filed and served as prescribed. The bond amount differs from the premium charged to obtain it.
A bond is not a guarantee of immediate payment. Preserve notices and enforcement deadlines while investigating the underlying claim.
Kushnick Pallaci PLLC assists clients throughout New York with construction surety and bond disputes. Contact 631-752-7100 or vtp@kushnicklaw.com.
Attorney Advertising. General information, not legal advice.
There are also completion bonds, which can be likened to a performance bond on steroids. While performance and payment bonds are vitiated by an Owner default, completion bonds are _triggered_ by an Owner default. I have used these when the ground lessee under a long-term ground lease wants to demolish and reconstruct the building. So long as the plans are approved, and the ground lessor has a completion bond that is financially sound and exercises some due diligence to make sure the contractor actually builds the replacement building, the fee owner should be safe.
ReplyDeletewith regards to a contractor's Performance bond is there any examples of the owner hiring a firm to complete a construction project, rather than allowing the surety/bonding company to hire a replacement contractor?
ReplyDeleteThere certainly are those situations but whether the surety is then liable for the cost of the completion is a different story. You have to read the terms of the performance bond to see what the owner's rights and obligations are and what the surety's rights and obligations are. Why would the owner want to hire a contractor separately if the surety is agreeing to handle the completion?
ReplyDelete