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.
Commercial bonds are used to protect consumers against deception and falsification, and provide compensation of monetary loss. These bonds are typically required by federal and state courts, government bodies, financial institutions, and private corporations. Some of the important types of commercial surety bonds include: Continue reading What Are the Different Kinds of Commercial Bonds?
Contract bonds are a requirement for bidding on public and private projects across the United States. Similar to other types of surety bonds, constructions bonds are a three-party agreement between the contractor (who needs the bonding), the entity requiring the bond (the project owner or obligee), and the surety (that underwrites the bond). Continue reading How Construction Contract Bonds Work?
Performance bonds are required by the developers as these bonds ensure that the contract will be completed propitiously. Winning a contract bid is not sufficient. The construction projects involve huge investments. If the bid winner refuses to take up a project or is not able to deliver the desired performance, there can be huge losses not only to the developer but also, to the general public and the government.
If the contract is secured by a performance bond then a claim can be made by the developer and the loss can be compensated by the performance bond companies. It is one of the most common bonds used in the Construction industry today.
How is rate decided?
The premium on the performance bond varies depending upon the bid amount, financial credentials of the applicant and his past work history.
Contractors typically pay a rate that’s just 2.5%-3% of the bond amount. This means if you’ve been contracted for a $100,000 project, you could pay just $2,500 to $3,000 for your performance bond.
Other things such as longevity of company’s existence, whether the applicant has been bonded before or not, and the personal credit will also determine the rate of the performance bonds.
You can apply for Performance bonds with us. Your application will be reviewed by our team and you will be issued a bond in no time.
Payment and Performance Bonds are the two types of Construction bonds often confused with each other. To get the basics right, one should know the basic difference between the two types of bonds.
A Performance Bond is a form of guarantee by the Surety Company, that a project will be completed according to the specifications mentioned in the contract. If the Principal fails to do so then it becomes the responsibility of the Surety Company to complete the project or have it completed.
The payment bond is a guarantee all the sub-contractors, workers, and laborers working on the project will be paid by the Principal.
These two bonds work in tandem to ensure a project is completed lien free. In many cases, both types of Bonds are required for construction projects. Sometimes, in rare cases, a payment bond may be required without the need of buying a performance bond. Bonding Companies generally offer Performance and Payment Bonds together so clients might pay one price for both types of bonds.
When applying, financial statements including balance sheets, income statements, cash flow statements, and a work in progress schedule with full disclosure are all required to complete the process.