Almost every construction project executed today requires an assurance of performance. The Construction Bonds ensure that the contractors are bound to deliver performance as assured under the bond. The bond itself secures the owner from lack of performance, contractor default, warranty issues, and more. The bond also secures the contractor from losing any money due to the non-commitment of the owner once the project has begun.
Who All are Parties to the Bond?
- Principal – They are the contractors who request for the Construction Bond before they take up a project. Subcontractors can also secure these bonds for working under the primary contractor for delivering essential equipment and supplies to them.
- Surety Company – They are the ones who issue the bond. They can be a bank or a private group that is financially strong enough to provide appropriate coverage. They pay the obligee if the contractor delays (or defaults) the project.
- Obligee – They are the project owner who gets assurance under the bond that their project will be duly delivered. If there is a delay or default, the surety company will compensate for their loss.
How Contractors Can Benefit from Construction Bonds
- They represent your financial standing: These bonds are issued according to your financial standing and past performances. With every bond, you will be able to build more credibility.
- They help you land more projects: With strong credibility, you will have the opportunity to attract more contracts. You can even pick the best ones among those according to your preference.
- They help keep disputes at bay: If there is a dispute after the project begins, the bonds keep you secured from taking any financial hit.
To know more about these bonds and more, call your nearest surety company today.
Surety Bonds secure the financial safety of an obligee when they assign a task to a contractor. Bid Bonds specifically assure that anyone who bids for the project does so in good faith. It also ensures that the contractor delivers performance as promised, along with all other bonds as applicable. The contractors on their part are assured of a higher chance to land a project of their choice. They can also submit multiple bids according to their capability.
Why Bid Bonds Are Necessary
Bid bonds bind both the obligee and contractor to the bond. The obligee has to provide an opportunity to the contractor after rolling out a project and pay according to the agreed terms. The contractor has to abide by the terms of the bond and deliver top-notch performance at an agreed price. If the contractor fails to deliver, the surety company that issued the bond has to compensate the obligee.
How the Bid Bond Cost is Calculated
Several factors determine the final value of a Bid Bond, such as:
- The total cost of the project
- The location where the project is to be executed
- The owner’s profile and record
- The contractor’s past record and financial credibility
- Any additional add-ons that may be required during the project
Role of a Surety Company
The surety company will be responsible to issue a Bid Bond after assessing the financial capability of the contractor. They have to screen the contractor’s past record to calculate the value of the premium. A good credit score should lead to a lower premium and vice versa. The surety company itself must be financially capable to finance the project before it can issue the bond.
Want to know how you can buy a Bid Bond yourself? Then contact your nearest surety company for a quick quote and other details today.
Based on the tremendous growth in Florida’s population over the next two to three decades, we are also facing issues that will challenge our ability to reap full benefits financially and organizationally from the growth. The greatest challenge that the construction industry faces is the ability to attract qualified personnel, particularly in those trades that require years of training before the individual(s) can reach skill levels where they are able to obtain the appropriate certifications. An example would be the MEP trades (mechanical, electrical, and plumbing) that are so critical to most vertical construction projects. According to the most recent information available, the average age of fully trained and qualified people working in those trades in the South Florida market is over 55 years old.
Although trade schools are making a comeback, through the 80s and 90s, society seemed to be pushing and financing the idea of getting a 4-year college degree rather than learning a trade. The decades gap in not putting an emphasis on the trades and providing more availability of training could negatively impact our ability to find enough qualified personnel to pursue the extensive amount of construction opportunities our growth will demand.
As we look at the Macro Consequences of Florida’s growth in the next two to three decades, it is easy to get lost in the very comfortable idea that there will be sufficient profitable work for every construction company domiciled in Florida. As true as that may be, the unintended consequences of the hyper growth we are facing will be the extreme changes that will have to take place in the construction entities that now play a leading role in Florida infrastructure projects.
Looking at the potential growth (Florida’s population could double in the next 25 years), there is no way that the current construction infrastructure that is available for Florida’s growth could even marginally undertake the multi-billions of roads, water, sewers, electric grid upgrades, public and private institutional structures, etc. that will have to be built to accommodate the ‘hoards’ that are looking to make Florida home. The additional available work will bring into our market National, International, and Regional competitors which will create additional competition on all levels and eventually make our great local contractors who have been “big fish in a relatively small pond” – “little fish in a huge pond”. Not all bad, but certainly not all positive.