Contractor surety bonds are very common in the construction business. Contractors must obtain a bond as part of the licensing requirement. Almost every government project requires contractors to be licensed and bonded. Should you insist on working with only licensed and bonded contractors in private projects? Yes.And there are good reasons for doing so:
A licensed and bonded contractor will abide by the government rules and regulations
A contractor surety bond requires that a contractor complies with industry rules and regulations. When a contractor submits the bond, it is understood that he/she will follow these rules and that your own project will proceed as per the rules.
What happens if the contractor does not perform as per rules and regulations? What happens when you suffer damages as a result? If the contractor fails to employ adequate safety measures and someone is injured, who will be responsible? As per the bond, the contractor is responsible for such security measures. If a problem occurs, a complaint is then levied against the bond. The surety will pay the compensation if the complaint is genuine. In this manner, your risk of liability is reduced.
You know they are already vetted
When issuing a bond, a surety company will make sure of certain factors. The company will typically check the applicant’s financial background and capacity of conducting a similar project. The bond is also a risk so surety companies are usually quite diligent in investigating applicants, especially in evaluating and vetting financial stability. When you hire a licensed and bonded contractor, you can be assured that he/she has passed a previous vetting process and are more likely to finish the project.
Payment bonds are very common in the construction industry. These bonds are usually required by contractors and sub-contractors. The bond ensures that subcontractors and material suppliers working on a project will be paid on time. The payment bond is usually part of most government construction projects. A contractor must submit the bond before the commencement of the project.
To ensure payments to sub-contractors
The main purpose of the payment bond is to ensure the sub-contractors and workers are paid on a construction project.
To ensure smooth continuity of a project
What happens if suppliers and workers are not paid in time? The work will sooner or later discontinue. This can cause huge delays and losses to the obligee. A smooth continuity of a project is in everyone’s interest. The bond ensures that sub-contractors and employees working on the project are paid on time and are motivated to finish on time as payment is usually for completed projects. In this way, the bond ensures timely payments.
To ensure ethical practices
The rationale behind a payment bond goes beyond the narrow scope of a project. A payment bond is devised to ensure that construction projects are conducted in an ethical manner. Through the bond, the project owner — usually the State–clarifies that everyone is treated fairly. Ethical practices in the industry make certain that regular payments occur. This is an important element in establishing ethical business practices.
To ensure only capable firms are employed
Before issuing a bond, a surety undertakes a thorough investigation into the principal. Specifically, a surety investigates each candidate’s financial stability, their ability to complete the project, and any outstanding loans or taxes. The surety ensures that only capable firms are employed in a project.
To reduce State liability
The bond holds the responsibility of payments firmly on the contractor assigned to the project. In the event of fraud, the contractor is liable. The compensation is paid against the bond. Without such stipulation, the State — as the project owner — can be held liable for losses. The bond then protects the State and the taxpayer’s monies.
A surety bond is a contract between three parties: principal, obligee and surety. Under the bond, the surety promises the obligee that the principal will act per the terms of the contract. There are many types of surety bonds that are common in the business and professional world. Bonds are a means of ensuring ethical and professional conduct.
There are three parties in a bond:
Principal:The principal is the party required to buy the bond and is usually a business or a professional who requires the bond to operate. According to the bond, the principal must act per the contract.
Surety: This is the party that acts as a guarantor, ensuring the obligee that the principal will perform their contractual obligation. The surety is usually an insurance or surety company that sells surety bonds.
Obligee: This is the party that is the recipient of the bond. It is usually a government body and the bond is usually a requirement to issuea contract or a license.
How does it work?
If you are a professional or someone running a business, you may be required to buy a surety bonds Georgia as a condition of your licensing or registration. Some bonds, such as a bid bond or performance bond, are also required to bid on a contract. The bid bond is usually demanded by an authority, such as a state licensing body. You can buy the bond from a surety company.
An underwriter for the surety will conduct a background check to ensure you are a good risk. This usually includes factors like past performance, business capability and financial stability. In short, the underwriter will ascertain whether you can maintain your contractual obligation. For a surety, a background check is critical to protect their obligation.
Types of surety bonds
There are many types of surety bonds; however, here are four types of surety bonds Georgia:
- Contract bonds:These are bonds that are usually required in the construction industry.
- Commercial bonds: There are many sub-types of commercial bonds. It ensures that a bonded company or professional follows industry rules.
- Fidelity bonds: Protect companies from employee misconduct.
- Court bonds: Court bond is a general term used for all surety bonds that are needed by individuals when they are involved in pursuing an action through a court of law.