The obtaining of surety bonds is an essential part of the construction industry. Public construction projects require bid bonds, payment bonds, and performance bonds. These bonds are designed to protect against contractor default. Obtaining surety bonds requires that you find a reputable bond broker and surety firm. A credible broker only works with reputable surety firms. You will need to understand the type of surety bond that your construction business needs.
How Surety Bonds Work
Bonds are similar to insurance. They provide protection in the event that something goes wrong, but unlike with insurance providers, who protect your construction firm, the bonds protect the client. They are required for when you wish to bid on certain projects, and they increase the chances that your bid will be accepted. The bonds are necessary because the construction industry is unpredictable and a lot of things can go wrong. The environment cannot be easily controlled. For example, adverse weather conditions can place the construction project behind schedule. Therefore, bonds are needed in order to provide assurances to the client.
Bid bonds allow for your firm to bid on jobs that are bonded. This type of bid bond ensures that your bid is correct. The company will also guarantee that you will be provided with a performance and payment bond in the case that your bid is accepted.
The performance bond guarantees the quality of the work that you perform. These are bonds required for government contracts so that they can protect government interests. A sum is paid if the contractor fails to perform sufficiently.
The payment bond guarantees that you will pay all of the subcontractors and laborers. If the price of the contract increases, the price of the surety bond will also increase. The payment contract pays a sum if the contractor fails to pay laborers and subcontractors.
Other Types Of Bonds
The type of bonds mentioned above are the most common types, but there are others available. Maintenance bonds provide a warranty for the client over a period of time after the project has been completed. The supply bond ensures that the materials are supplied according to the specifications of the contract. If you would like to bid on a project that requires a bond that you did not expect, make sure to contact a surety bond company, such as NFP, P & C, Inc., to understand the nature of the bond.Share