Bonds are used frequently to enhance regulations in the industry and are particularly common in construction. Until contractor knows their obligations it is not uncommon for a contractor to know little about bonds. Construction professionals should familiarize themselves with the types of bonds which are often requested, and assist control the industry so that the method runs easily, land new projects and drive additional revenues. This article highlights the main construction bonds.
Types of Bonds
1. Bid Bonds
A bid bond is a guarantee that, once it has been awarded, the bonded contractor will commit to the contract. Bid bonds remove uncertainty from contractors who are not willing to take up a job. This is a process for three parties, including the surety company or bank, the owner and the contractor. Bid bonds costs are different, but usually, a flat fee is paid.
2. Performance Bonds
The performance bond ensures the contractor’s ability to finish and fulfill project goods constructing and installation. They guarantee that the project is completed in the way described in the contract and that the time assigned to complete construction is also maintained. The owner may claim the bond if the project lasts longer than expected or is finished unsatisfactorily. If the contractual terms of the contract have not been met, the bond can be utilized to compensate the owner.
3. Payment Bonds
The payment bond is needed to guarantee that contractors and suppliers are paid upon the construction of work and material. They guarantee that sub-contractors and suppliers are paid for their contributions to a project and that the project owner does not accept these costs unless the contractor can pay.
4. Supply Bond
These bonds ensure that contractors can get supplies or materials in a faithful way. If the supplier fails to deliver the items according to the contract, the bond is used to reimburse the purchaser for the resulting loss.
5. Maintenance Bonds
Maintenance bonds are one of the most common construction bonds. They become effective after the contract is completed and generally cover 1 to 2 years after completion of the work. This relationship involves labors and materials.
How Do Contractors qualify for Bonding?
The contractor must provide its resume, important official information, personal finances, (in some cases), financial statements and contactor qualifications in order to achieve bond performance. Past performance is also essential in order to ensure that there are no default problems in the past.