A construction bond is a type of surety bond. A surety bond is a three-party contract that includes the surety (company that guarantees performance); the principal (contractor); and the obligee (owner). The Principal promises to perform its contract obligations to the obligee (owner), and the surety guarantees the principal’s performance of its obligations by paying the obligee if the principal fails to meet its obligations. Surety bonds used in construction are called contract surety bonds.

There are 3 types of contract surety bonds:

1. Bid Bond. A bid bond provides financial protection to an obligee (owner) if a bidder is awarded a contract based on bid documents, but fails to sign the contract and provide the required performance and payment bonds. The bid bond helps screen out unqualified bidders and is an important part of the competitive bidding process on some construction projects.

2. Performance Bond. A performance bond protects the obligee (owner) from financial losses if the contractor fails to perform the construction contract according to its terms. If the obligee (owner) declares the principal (contractor) in default and terminates the construction contract, the obligee can demand the surety meet the surety’s obligations under the terms of the bond.

3. Payment Bond. A payment bond guarantees the contractor’s payment of subcontractors and material suppliers.

In New Hampshire, construction bonds are a common requirement for public construction projects and may also be used in private projects. These bonds are a form of surety bond, involving a three-party agreement between the surety (the company guaranteeing performance), the principal (the contractor), and the obligee (the project owner). The principal is obligated to fulfill the contract terms, and the surety ensures this performance by compensating the obligee if the principal fails to meet their obligations. The three main types of contract surety bonds used in construction in New Hampshire are: 1) Bid Bonds, which ensure that a contractor will enter into a contract if their bid is accepted; 2) Performance Bonds, which guarantee the contractor's performance in accordance with the contract terms; and 3) Payment Bonds, which ensure that subcontractors and suppliers will be paid by the contractor. These bonds are regulated by state statutes and may be required by federal law for certain projects, particularly those involving federal funding or public works.