How Payment Bonds Work

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If you are in construction business, you must have heard of payment bonds. Most public construction projects in the state of Florida typically will require contractors, sub-contractors, or builders to have a Florida payment bond.

What is a payment bond?

A payment bond is required in construction projects along with a performance bond. The bond ensures that the principal will pay the suppliers, vendors, sub-contractors and laborers working on the project on time. It is a type of surety bond and like all such bonds, it’s a three-way contract between the obligee, the principal and the surety.

The principal is the party buying the bond, usually a contractor or builder. The obligee is the project owner and the surety is the bonding agency that is licensed to offer Florida payment bonds.

How does it work?

The payment bond is usually demanded at the beginning of the project along with the performance bond. When a contractor wins the bid for a project, he/she must submit these bonds. If the contractor subsequently fails to make the required payments, a complaint can be raised against the bond. If the claim is valid, the surety will pay the amount.

Why do we need the payment bond?

The payment bond is very common in public construction projects and there are good reasons for it:

– It makes sure that all parties in the project are paid on time. This also ensures that there are minimal disruptions, so that the project can be completed smoothly.

– Payment bonds enforce ethical practices, a vital requirement in a public-funded project.
– Without the Florida payment bonds in place, the obligee could be held responsible as the project owner. With the bond in place, the liability of payments is clear, and the funds are in place.

 

Surety Bonds and How They Work

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Surety Bonds perform an essential role in the construction industry. A Surety Bond is a three-way contract between the surety (the company providing the bond), the principal (the contractor) and the obligee (the project owner). The principal usually applies for the Surety Bond with the surety and it is to protect the obligee’s interest.

A Surety Bond is simply a three-party agreement or contract where the first party, the surety, guarantees the performance of the second party, the principal (contractor), if they default on their obligation to the third party, the obligee (project owner).

The reason Surety Bonds work so well is simple. They help to take the risk out of a risky business. Surety Bonds are designed to protect your interest from the actions of a third party.

There are Four Major Categories of Surety Bonds:

There are variety of Surety Bond types designed to meet your needs. In fact, almost any contract or obligation can be bonded. But, the four most common types of Surety Bonds include Contract Surety Bonds, Commercial Surety Bonds, Court Surety Bonds, and Fidelity Surety Bonds.

1. Contract Surety Bonds:

In the construction industry, one of the most common bond types are Contractor Surety Bonds. They include Bid Bonds, Performance Bonds, and Payment Bonds. All are needed for different purposes to ensure that the interests of the obligee are protected, especially if the principal fails to meet the terms of their contract.

Bid Bonds financially protect an obligee if the bidder awarded the contract fails to sign the contract and fails to provide the essential Performance and Payment Bonds.

Performance Bonds, on the other hand, are put in place to protect the obligee from monetary loss if the contractor fails to deliver the job according to their agreement.

Payment Bonds are there to guarantee that the contractor is going to pay the workers, subcontractors, and material suppliers involved in the project.

A Contract Surety Bond protects the project owner by guaranteeing that the contractor will follow the specifications and perform the work laid out in the construction contract. It also ensures that certain labor, materials suppliers, and subcontractors will be paid.

2. Commercial Surety Bonds:

Commercial Surety Bonds are Performance Bonds in which the surety (the company providing the bond), guarantees to the obligee (usually the public). The principal usually applies for the Surety Bond and are usually mandated by federal, state or local government agencies or private owners. The most common commercial contractors are manufacturers, wholesalers or retailers – as well as all businesses with a license get a Commercial Surety Bond. These bond types provide a guarantee by the principal of financial performance.

3. Fidelity Surety Bonds:

Fidelity Bond are a type of surety designed to protect a company or customers against specific types of loss that can include employee theft, malpractice due to forgery or false documentation and general theft or fraud. Fidelity Surety Bonds typically protect against the loss of money, equipment, or personal supplies.

4. Court Surety Bonds:

Court Bonds are 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. A Court Surety Bond can also be required by an attorney or similar entity before a court proceeding to ensure protection from a possible loss. These Court Surety Bonds typically guarantee the payment of costs associated with lawyer fees or appealing a previous court’s decision. Other Court Surety Bonds protect an estate against malpractice of the estate’s administrator.

Court bonds can be divided into two main categories: Judicial Bonds and Fiduciary/Probate Bonds. The main difference is that a Judicial Bond promises payment of sum of money that would be required in a court case, while a Fiduciary Bond only promises faithful and honest performance of a duty.

What Do You Need for a Surety Bond?

Before you apply for a surety bond in Florida, make sure that all your documents are in order so that you can expedite the whole process. Essential documents include:

Financial Records: Surety companies will ask for both personal and business records. For businesses with less than $20 million in sales, you will need to provide financial statements for the last year and for the interim period in this year, most recent personal and corporate tax returns, financial records of majority shareholders, and a bank reference letter. Companies with more than $20 million in sales need to show their audited financial records.

Resumes: Some surety companies may ask for resumes of key personnel. Make sure to highlight any relevant experience.

WIP Form: WIP stands for “Work in Progress” form. Ask your surety company for the relevant form. This details all the projects you have completed recently, ongoing work, and any outstanding surety.

Insurance: Some surety companies may insist on work insurance to see that there are no uninsured liabilities.

References: Companies issuing Surety Bonds in Florida will ask for references from associated parties, such as past clients, suppliers and so on. The references are an indication of other’s trust in your ability.

Apply for a Surety Bond Online:

Surety Bonds are usually required for contractors to work on projects. Without it, a contractor might not be able to work with project owners, workers, and material suppliers. These are the people who play a significant role in the successful completion of contracted jobs. Surety Bonds protect project owners if the principal does not fulfill their obligations per the terms of their agreement.

Given the number of construction projects around the country, there are many contractors bidding to be chosen for these projects. Surety Bonds are usually required to even bid on projects. To apply for a bond, you must find a reputable Surety Bond insurance company to apply with. You want to find a surety company with a good reputation and positive reviews.

Before choosing a surety company, make sure they have the available resources to support the project you are bidding on.

A Brief History of the Surety Bond: 

2,750 BC:

The earliest known surety contract was written on a Mesopotamian tablet. The contract was between a farmer who could not take care of his fields because he was drafted into the king’s army, and a neighboring farmer who offered to work his fields. They agreed to split the profit from the harvest evenly. The world’s first known surety broker was a local merchant who guaranteed that the second farmer would keep his word.

1894 AD:

While sureties have a long history, it wasn’t until the late 19th century that surety bonds became commonplace. The year was 1894 and Congress recognized the need to protect taxpayers and passed the Heard Act in 1894, which required surety bonds on all federally funded projects.

2017 AD:

Fast-forward more than a century to the year 2017.

Today, federal law requires performance and payment bonds for all public work contracts in excess of $100,000 and payment protection for all contracts above $25,000.

But obtaining a Surety Bond can be a grueling, time intensive process. That’s why more companies turn to America’s number one provider of Surety Bonds, Nielson, Hoover & Company.

No one knows Surety Bonds like NHC:

At Nielson, Hoover & Company, the only thing we do is Surety Bonds and we do it better than any other company out there. We specialize in all types of Surety Bonds – from Bid Bonds, Performance Bonds, Payment Bonds, and Maintenance Bonds to Commercial Bonds, Judicial Bonds, License & Permit Bonds, Fidelity Bonds, Payment & Performance Bonds, Public Official Bonds, and Subdivision Bonds.

At NHC, our people make our company. In fact, we have the largest staff of experienced professionals – larger than any other agency, larger than any surety company in the market.

We do business on your terms. That’s why we offer you multiple ways to request your bonds. Whether it’s online, an email, a fax, in-person or through our #1 Bond Request app or the industry’s first and only web-based portal, “Suretegrity”, where you can apply online and securely print a certified surety bond with just the click of a mouse. No matter how you apply, our simple application process is designed to make the job fast, efficient and accurate.

We are experts in all aspects of the construction industry, from understanding contracts and subcontracts to the details of how the industry’s accounting procedures and sureties function. This comprehensive knowledge, combined with a keen sense of the markets, allows us to tailor the perfect surety solution for our clients.

Over time, we’ve become trusted advisers to both the agents and the surety companies we represent.

Because of our knowledge, experience and the relationships we’ve built, only Nielson, Hoover & Company can guarantee you better service, more negotiating power and better terms than anyone else in the industry.

Nielson, Hoover & Company. You don’t become number #1 overall, unless you’re #1 through and through. To start working with the nation’s number one provider of Surety Bonds, visit nielsonbonds.com or call 305.722.2663.

4 Things You Should Know About Maintenance Bonds

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A maintenance bond is a type of surety bond that guarantees the contractor will undertake maintenance work if any faults or defects in workmanship, materials, or design appear after the project is completed. It is typically part of a construction contract. A contractor has to buy the bond from a maintenance bond provider Florida and submit it to the project owner on winning the construction contract.

It ensures quality construction

When a maintenance bond is part of the construction contract, a certain quality of construction is automatically imposed. The contractor winning the bid knows that they will be liable for any damages or faults in the construction. This ensures that the contractor will take the utmost care in material selection, workmanship, and design execution.

It protects the owner’s investment

Without a maintenance bond, the onus of all repairs will fall on the project owner. If the construction is faulty, it can jeopardize the owner’s entire investment. By making the contractor responsible for paying for damages and assuring the quality of construction, the owner’s investment is protected.

It is time-bound

A maintenance bond is time-bound. A contractor is only required to pay for the maintenance of the project for a specified time period. Once the specified time period ends, the owner is responsible for any repairs that may occur.

It ensures that the contractor is financially stable

When a contractor buys the bond from maintenance bonds provider Florida, they will have to go through a thorough evaluation. The surety underwriter will examine the financial stability of the contractor to make sure they have the ability to carry out the construction and any required maintenance. This ensures that only qualified and capable contractors get bonded.

Know More about Judicial Bonds

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Judicial Bond Miami is a type of surety bond that is categorized under court bonds. They are usually required in civil proceedings. The bond ensures that you will pay for all the costs related to the legal proceedings. The court will typically let you know if you are required to get a Judicial Bond.

Types of Judicial Bonds

Judicial Bonds are usually categorized as Defendant Bonds and Plaintiff Bonds, or voluntary and compulsory bonds.

Defendant bonds: As the name suggests, the defendant bonds are bought by the defendant in a case. There are many different types of Defendant Bonds, such as Appeal Bonds, Bail Bonds, Release of Lien Bonds and Counter-Replevin bonds. These are usually compulsory bonds. The defendant bond ensures that the defendant will pay the fee in case of an adverse judgment.

Plaintiff Bonds: These are required of plaintiffs and are usually voluntary. The bond protects the defendant in case the lawsuit goes against the plaintiff. In such cases, the plaintiff is held liable for any damages suffered by the defendant as a result of the court proceeding. The bond guarantees that the plaintiff will pay the damages. If the plaintiff fails to do so, the court will recover the cost from the surety. There are different types of plaintiff bonds, such as acclaim and Delivery Bonds, Attachment Bonds, Injunction Bonds, Replevin Bonds and Indemnity to Sheriff Bonds.

Why do we need Judicial Bonds Miami?

Judicial Bonds ensure that court judgments are carried out, an essential requirement for any judicial system. It forces the losing party to pay the compensation amount decided by the court. In case the losing party doesn’t the court can recover the cost from the surety. By protecting the rights of the winning party, it also ensures that justice is done.

Why we Need Subdivision Bonds

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Subdivision Bonds Miami is a type of contract performance bond. They are required by a city, state or federal body as part of a construction contract. The obligee here is the city/state/federal body that rewards the contract and requires the bond. The principal is the contractor, developer or construction company that buys the bond.

What is the purpose of a Subdivision Bond?

The bond is a guarantee that the principal will undertake the construction of a subdivision or will finance and complete mandatory public improvements. These developments usually involve sidewalks, streets, curbs, drainage systems, gutters, and sewers. Subdivision bonds are now becoming increasingly common in state construction projects.

Why do we need Subdivision Bonds?

Subdivision Bonds Miami is meant for public improvement and for the development of the community. There are three main reasons for issuing Subdivision Bonds:

To ensure regular development

By making Subdivision Bonds part of the construction process, we ensure that regular development is carried out in a given area. Whenever a construction company, contractor or developer bids on a project, they also have to commit to the development of the subdivision. This could include building roads, curbs or maintenance of a parking area. Not only can we ensure that new improvements are carried out, but we can also see that the existing infrastructure gets an upgrade.

To reduce the burden on taxpayers

Without the bond in place, we cannot have any commitment from businesses to develop the local infrastructure. Without that, the government will be responsible for these improvements increasing the financial burden on the taxpayer.

To provide funds for public development

If the contractor or developer fails to carry out the development of the subdivision, the principal will have to pay the bond amount which then can be used for the intended subdivision development.