Chapter 17 of 194% of exam
South Carolina Insurance & Bonding
The three construction bonds each protect a different party. This chapter covers the payment bond and how it differs from the bid and performance bonds.
The payment bond
On a project with the three standard construction bonds, the payment bond protects subcontractors and suppliers if the prime contractor fails to pay them. It gives lower-tier parties a source of recovery separate from a lien claim against the owner's property.
The bid and performance bonds
A bid bond protects the owner if a low bidder backs out, and a performance bond protects the owner by assuring the work is completed. A surety bond is a three-party guarantee, and if the surety pays a claim the contractor must reimburse it - unlike insurance, which does not seek repayment from the insured.