A completion bond guarantees to project owners and lenders that a construction project will be completed in accordance with the contract. If the contractor defaults, the surety steps in to ensure completion or to compensate the affected parties, as specified in the bond.
On public construction, completion security is usually satisfied by a 100% performance bond required under the Miller Act and applicable state bonding laws. On private, lender-financed projects, a separate completion bond or, more commonly, a performance bond with a dual-obligee rider is required to give the lender direct rights under the bond.
A performance bond protects the project owner. A completion bond or dual-obligee rider extends this protection to the lender, ensuring the lender’s collateral interest is secured even if the contractor defaults. The dual-obligee approach is the preferred structure because it uses a standard performance bond form, which is already familiar to underwriters, while naming both the owner and the lender as obligees.
Completion bonds are priced similarly to performance bonds, typically at 0.5% to 3% of the contract value for qualified contractors. The dual-obligee rider adds a modest endorsement fee, usually $200 to $500, to the base performance bond premium.
A completion bond guarantees to owners and lenders that a construction project will be finished as planned. If the contractor defaults, the surety ensures completion or compensates the affected parties.
A dual-obligee rider is an endorsement added to a performance bond that names both the project owner and the lender as obligees. This gives the lender direct rights under the bond, the most common structure for lender-financed projects.
Not exactly. On public projects, performance bonds satisfy completion requirements. For private lender-financed projects, a completion bond or a dual-obligee performance bond is specifically structured to protect the lender’s interests.
Review your loan documents and construction contract. If a lender requires completion security, they will specify whether a standalone completion bond or a performance bond with a dual-obligee rider is acceptable.
