Contract bonds
Performance and payment bonds in NJ
A performance bond guarantees the owner that you will complete the contract; a payment bond guarantees that your subcontractors and suppliers will be paid.
On New Jersey public works, both are generally required of the winning contractor, and bid bonds and a surety’s consent are usually required with the bid itself.
Who it’s for
- Contractors who won, or are bidding, a public or private job that requires bonds
- Subcontractors whose general contractor requires them to be bonded
- Contractors bidding NJ municipal, county, school or state construction work
How bonding works on NJ public work
- Under the Local Public Contracts Law, a bidder on a local public construction contract over $100,000 must submit a bid guarantee of 10% of the bid, up to $20,000, which can be a bid bond.
- The bidder must also submit a certificate from a surety stating it will provide the required performance bond. Missing either can be a fatal, non-waivable bid defect.
- Under the Public Works Bond Act (N.J.S.A. 2A:44-143 to -147), contracts for public buildings and public works paid for by the State, a contracting unit or a school district require a performance bond and a payment bond from the contractor. Smaller contracts can sometimes be exempted.
- The payment bond protects subcontractors and suppliers, who can make claims against it under the statute’s notice rules.
Bid, performance, payment and maintenance bonds
| Bond | When it’s needed | What it guarantees |
|---|---|---|
| Bid bond | With the bid | You’ll sign the contract and furnish the final bonds if you win |
| Performance bond | At contract signing | The work is completed under the contract |
| Payment bond | At contract signing | Subcontractors, laborers and suppliers are paid |
| Maintenance bond | At or after completion | Defects found during the maintenance period are fixed |
What to have ready
- Bid or contract documents, including the bond requirements and forms
- Contract amount, project owner, location and schedule
- Business financial statements (CPA-prepared for larger bonds) and a work-in-progress schedule
- A list of completed projects of similar size and type
- Your bank line of credit, if any
- Owner names for the indemnity agreement
Mistakes that cost people later
- × Bidding a job before confirming you can get the final bonds
- × Submitting a bid bond or surety certificate that doesn’t meet the bid specs
- × Taking on a job far larger than your past work without talking to the surety first
- × Not telling the surety about changes to the contract amount or scope
Questions people ask
How much is a bid bond on NJ public work?+
Under the Local Public Contracts Law, the bid guarantee is 10% of the bid, up to $20,000, on local public construction contracts over $100,000. Check the bid specs for the exact requirement.
Are performance and payment bonds required on NJ public works?+
Generally yes, for public buildings and public works paid for by the State, a contracting unit or a school district, under the Public Works Bond Act. Some smaller contracts can be exempted.
What is a consent of surety?+
A certificate from a surety, submitted with the bid, stating that it will provide the required performance bond if you win.
Do subcontractors need bonds?+
If the general contractor’s subcontract requires them. Many GCs require bonds from subs on larger trades.
Sources
Related bonds
Increase bonding capacity
Surety won’t go bigger? What sets your single-job and aggregate limits, and how to raise them.
Declined for a bond
Weak credit, thin financials or a past claim: how hard-to-place bonds get written.
Subdivision & site improvement bonds
Performance and maintenance guarantees for NJ subdivision and site plan approvals.
Bond approval, amounts and terms are decided by the surety based on its underwriting. Approval is not guaranteed. A surety bond is not insurance for the principal: if the surety pays a claim, the principal and indemnitors must repay it. Kevin Brown Insurance Agency does not provide legal advice; consult your attorney about court filings and contract terms.