Subdivision Bond

There are several categories of contract bonds (construction bonds, payment bonds, performance bonds, or subdivision bonds) all of which are three-party agreements between the contractor, owner as oblige, and the surety.

Subdivision Bond represent a large portion of construction revenue in recent years, due in part to recent trends towards "planned communities" which allow subdivision residents to shop, engage in recreational activities and even work and send children to school within their community area. Planned communities are generally part of a larger metro area and can provide a sense of being a part of a smaller and close-knit population as well as the convenience of amenities in close proximity to a resident's home.

Construction companies thinking about getting into the subdivision development business absolutely need to consider many factors, including the current state of the economy, as many projects are not as financially solvent as they once were. Contractors need to ensure that they are financially able to complete the project. Another crucial consideration closely tied to financial issues surrounding subdivision development is the requirement of a subdivision surety bond.

Subdivision surety bonds are required by the state or locality in which the subdivision will be built and essentially ensure that the subdivision will be built according to a mutually agreed upon contract and that the project will be completed in a timely manner. Subdivision bonds cover all aspects of construction including streets, houses, even gutters and drainage ditches. They can often also serve to make sure that everyone is anticipating the same final product and is on the same page about construction. The bonds also make it possible to file plats with the county or city in advance of the project being completed.

Subdivision bond amounts vary from state to state and often depend on the size and scope of the project at hand. The contractor will undergo an application process from the surety bond company to make sure that he or she is financially solvent enough to cover the bond should there be a claim, and rates will vary according to credit score.