A site improvement bond is slightly different from many of the more common contract bonds used for general construction projects. These types of Surety Bonds guarantee performance and payment to the client, and are often required as a condition to getting a construction permit for a specific project.
Many municipalities require by law (or ordinance) that a developer or owner who undertakes a housing or industrial subdivision project purchase a Subdivision Bond. This guarantees that the owner or developer will install specified improvements within a certain time period and according to the governing body’s requirements.
For example, contractors frequently need these bonds before they can begin certain reclamation projects that could drastically change the surrounding landscape. In many cases a developer will start the subdivision process by filing maps with the public agencies responsible for overseeing land use where these projects are located. These maps provide information, including public improvements, necessary to serve the project.
Public improvements may include any or all of the following:
- Curbs and gutters
- Streets and sidewalks
- Utility lines
- Landscaping, and
- Storm drains
These off-site improvements will become the property of the public entity once the work is completed. Another key difference with a site improvement bond is that the owner or developer (known as “the Principal”) has to pay the cost of building the bonded improvements rather than the public agency (the Obligee).
Should a general contractor agree to secure the site improvement bond on behalf of the owner (D eveloper), rather than in favor of the public agency, then the general contractor is obligated to complete the improvements and pay all the bills irrespective of whether the owner paid the contractor (normally, the general contractor has the contractual right to stop work if the owner does not pay him).
Generally, installation of public improvements is a condition imposed on a developer for the project to proceed, and the owner is required to furnish acceptable security to guarantee completion and payment of the work, hence purchasing Surety Bonds for performance and payment. Obviously how the bond is secured can determine liability if the job is not completed on time, or in a manner that is not acceptable to the stated terms and conditions. All contractors should consult with an agent prior to starting any work to decide what is the best way to go about this process in order to avoid issues well into the project.