Why You Need Payment Bondsby pauladams |
If you are a contractor bidding for a construction project in Florida, chances are that you have heard of payment bonds. Most government projects will ask for a Florida payment bond as part of the bid condition.
What is a payment bond?
A payment bond is a type of surety bond and like any other surety bond, it has three parties:
– The Principal: The contractor who is required to buy the bond.
– The Surety: The surety company that sells the bond.
– The Obligee: The project owner who is asking for the bond.
The payment bond guarantees that the contractor will pay subcontractors, material suppliers and workers on time. It is usually required along with a performance bond and is submitted when the contractor wins the bid to the project.
Why do we need payment bonds?
To make sure everyone is paid on time: The payment bond makes sure that there are no delays or fraudulent behavior by a contractor when making payments. Without the bond, the project owner could become responsible for those payments.
To reduce disruptions: The completion of any construction project depends on timely payment of workers and material suppliers. Delays can cause unrest or stall a project for a prolonged period, resulting in huge losses for the project owner. The framework to ensure timely payment reduces the chances of such disruptions.
To protect against loss of reputation: While it is the responsibility of the contractor to make these payments, it is usually the project owner that is ultimately responsible. When the project owner is a government body, this is highly undesirable.
Fixing liability: The Florida payment bonds fix the liability on the contractor.
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