When a developer or a contractor hired by a developer is seeking a construction permit to add or enhance improvements to a residential or commercial subdivision, the municipality with jurisdiction over the area is likely to require a site improvement bond. The intent is to provide financial protection for the municipality. After all, improvements such as sidewalks, roads, streetlights, curbs, sewers, and so on belong to the municipality; not to the developer or individuals or businesses that occupy the structures within the subdivision.
A site improvement bond guarantees that the work on such features will be completed as specified in the contract governing the improvement project. If the work is not completed or is deficient in some way, the municipality won’t be left in the lurch or stuck with the bill for getting the rest of the work done. The local government entity requiring the site improvement bond can file a claim against it to obtain the necessary funds to complete the project. Some site improvement bonds also guarantee payment of contractors, sub-contractors, and suppliers.
Site improvement bonds are often conflated with subdivision bonds because they are very similar. Both serve essentially the same purpose, though subdivision bonds are required when the work is being done on new subdivisions while site improvement bonds are required for work on existing subdivisions.