Performance Bonds and Labour & Materials Bonds Insurance Quotes

When building, it pays to have insurance in place. Among the best insurance policies for construction that an owner can buy are the Performance, and the Labour & Materials Bonds.

We explained how the owner is protected during the bid stage by a Bid Bond. Once the tender process has been completed and the contractor is prepared to sign the contract to build, it’s time to exact the next stage of protection.

Most often, Performance Bonds and Labour & Material Bonds are used in tandem. Each has a specific purpose and together they provide insurance that the building will be completed and that the suppliers and contractor’s direct subtrades to the general contractor are paid.

These bonds are usually based on a percentage of the construction cost – most often either 50% or 100%. The costs of these bonds are provided to the contractor similar to insurance quotes and charged to the contractor by the insurance company often as a cost per thousand of construction cost. That bond cost is included in the tendered amount charged by the contractor to the owner/purchaser.

First, the Performance Bond is an insurance policy designed to ensure that the construction project is completed. Should the contractor default for any reason, the bonding company will provide the extra funding as may be required to finish the project.

The Labour and Materials Bond is a policy designed to guarantee the all of the materials and services that the contractor solicits are paid for. Now I understand that some may say that contracts requiring Statutory Declarations cover this – and that is true.

However, if the contractor signs the ‘Stat Dec’ but does not pay trades or suppliers, there can be a wad of litigation with a tremendous amount of accounting required by the owner. This can cause a horrific burden on a company’s administration.  With an L&M Bond in place, the responsibilities are handed down to the bonding company.

Needless to say, bonding companies scrutinize contractors carefully before awarding them bonding. And the status of existing bonds with those companies is monitored as well to ensure that contractors do not extend themselves beyond the limits that the bonding company seems prudent.

With these bonds in place, the owner can go about the business of administering the construction work without the worry of the contractor defaulting or not paying subtrades and suppliers.


The next protection that the owner will require is to get completed  building insurance quotes (and of course contents insurance quotes).