If you are thinking about construction bonds, read this
Also called a building bond or construction surety, a construction bond is a contract that the main players of a building project get involved in. By signing it, the project is protected from disruptions and any untoward incidents that may occur on site. This could be anything – a contractor may become insolvent, bankrupt, the project may be stalled midway or it may not live up to the expectations of the client. In all these cases, no matter whether the project is large or small, the construction bond can be extremely helpful. Two of the most reputed companies that deal in construction bonds are The Hartford and Zurich.
Seeing how difficult things can sometimes get in the construction field, it makes sense to have construction bonds. If the terms and conditions of the bond are not fulfilled, then the developer can claim a bond and try to recover losses.
The surety bond agreement in construction bonds has three main parties.
- The contractor or the firm involved in the building project also called the principal party.
- The firm that guarantees protection, also known as the surety.
- The party that requires bonding, or the obligee, who is the owner of the project concerned.
Types of Bonds
There are different types of bonds. They depend on what kind of construction it is – national, government, public or federal. But here are the basic ones:
- Bid Bond – the first step in any project is the entry of the bid. The bid bond lets you do that. This ensures that the project is fairly priced, safeguarding the interests of the public as well.
- Performance Bond – if the bid is won by a contractor, the performance bond lets a contractor perform on the job.
- Maintenance Bond – this is an important document that guarantees workmanship.
- Payment Bond – this bond ensures that every person involved in the project is paid – the suppliers, the laborers and the contractors.
- Supply Bond – if your job is to ensure materials are delivered, the supply bond is the one for you.
- Site Improvement – here, older structures or already existing projects are renovated and refurbished.
- Subdivision – this pertains to public structures like walkways, water systems and sideways.
- Contractor license – this is important and each state, city, county has a different requirement. Depending on where the construction is taking place, the contractor will have to get the appropriate bond.
There are two reasons why it is not possible to win a construction project without a construction bond.
- The surety makes sure that builders follow through on their promise to complete the construction project, or they lose the amount of the bond. So, clients often insist on a construction bond before they hire contractors.
- A bond is a guarantee that ethical business practices will be followed. The injured party can file a case against anyone who goes back on their word, be that the engineer, builder, architect or supplier. This is another reason why clients prefer construction bonds.
Construction bonds simplify the ever-changing world of construction.