Understanding A Surety Bond

When it comes right down to things a construction bond is nothing more than a contract. It might be a complex one, but it is a contract at heart. This guarantee, usually in the form of a performance bond, letter of credit, or cash, is put in place to ensure the performance of an obligation. In most cases, the bond forces the principal to perform as specified in the agreement. To make things simpler, just imagine if you were getting a new roof installed. If you (the obligee) wanted to force the roofing company (the principal) to get a surety bond, you could. This contract will give you the peace of mind that you need to know the roofing company will do a satisfactory job.

However, this is not the only case where a surety bond can be utilized. They can pretty much come in handy any time two parties are involved in any kind of agreement.

Competent Parties

One element that you learned about earlier was competent parties. Well, this term simply refers to any individual that is entering into a binding agreement. Keep in mind that in order to enter into a binding agreement like this and make it legal, you must be declared competent. There are some situations where the individual entering into the contract can and will not be deemed competent. Someone might not be deemed competent by the court of law if they are under the legal age limit, elderly to the point where they need assistance, intoxicated, or mentally disabled. When an individual falls under this classification and enters into a contract that contract can be deemed void.

Things can get even trickier when a corporation is involved. There are some situations where a corporation will not only be considered a competent party, but they will be able to enter into a contract with implied powers. When this happens and it does often in Canada this will allow these corporations to own or sell real estate properties as well as adopt regulations. There are some powers that can go beyond the reach of the corporation. These powers are usually referred to as an ultra vires act. Corporations do not even have the implied power to become a guarantor or surety on behalf of another party unless such a guarantee is designed for the continuance of certain corporate goals.

There are a lot of times when insurance providers are granted this kind of power to engage in such activities, but unfortunately, this is not the case for other corporations involved.

The Agreement

One of the most important components of a surety bond is the agreement. The agreement is so important because it outlines the project in detail. The agreement will entail important details of the project or service. For example, a surety bond for a development project will consist of an agreement with details about the supplies, deadline, overall costs, termination, principal’s business license, renewal, and parties. 

The agreement also outlines the party responsible for the bond. The principal is generally the main party responsible for fulfilling the surety bond agreement. Most surety companies will write up their surety bonds to include information about the results of a termination, failing to fulfill the agreement, missing the deadline, and recovery. 

If at any time, the obligee determines the principal has not fulfilled the surety bond agreement, he/she has the right to file a claim against the surety bond. With that said, surety companies go through a great deal to ensure the principal is fully capable of handling the project or service before agreeing to issue the surety bond. 

An agreement in a surety bond is comprised of three main elements, including the acceptance, offer, and subject matter. The surety company acts as a mediator for the principal and obligee, making sure the agreement is informative, thorough, and meets the Canadian rules and regulations of the surety bond market.

No surety bond will be deemed “binding” until the obligee acknowledges it. All parties will have to sign the surety bond before it is deemed “binding”. Only then will the surety bond stand in the court of law. Once the surety bond is considered “binding”, it cannot be broken. 

What To Know About The Consideration

The consideration will be a part of the contract. In legal terms, the consideration is the price that was agreed upon for the promise in question. It is pertinent to make sure that your contract is effective. To do that, you need to make sure that something valuable is given by the promise. And, the law must regard the payment as valuable. And, the guarantor must bargain for the consideration. Simultaneously, you have to understand that it is something that the promisor did not have a right to in the beginning. 

If you’re able to meet these demands, you can rest assured knowing that your contract will be considered legal and enforceable. The consideration should promises results to the party that is asking for those promises. Otherwise, there is a good chance that you’re contract is not going to be valid and you may run into problems. This is why you should think about working with a professional. The laws are very complex. There is a good chance that you will not be able to understand them on your own.

ConstructionBond is here to help. Get in touch with us and we’ll make sure that you fully understand your obligations.

Must Have A Legitimate Object

Ultimately, the contract will need many things before it can be enforced legally. One of the most important things to remember is the legitimate object. If the contract does not have a legitimate object it will not be legally enforceable and everyone will be wasting their time. A surety company will go above and beyond to ensure that this information is present. The agent in charge will review the bond form as well as its terms and conditions. This prevents the company from entering into an agreement that may be illegal. And, this would result in the rights and obligations of both parties becoming confusing.

With this in mind, it is best to work with a surety when attempting to obtain surety bonds. Failing to do so will likely damage your business. You may end up signing into a surety contract that requires unrealistic things from your business and that would lead to major issues. Working with a reliable surety bond is highly recommended.

The Prescribed Form Is Needed

The law associated with surety contracts has changed somewhat over the years. One thing to note is that the Statute of Frauds has remained in place for many years. Since it was implemented in 1677, the law makes it clear that contracted must be evidenced in writing. This is one of the most important conditions of enforceability. If the contract is not evidenced in writing, it may not be honored by the court and this could create big problems for you, your company, and the client.

There are many situations where this would occur. For instance, the company may not be able to perform the contract within a year after the contract was created. Or, there might be a chance that the parties come to an agreement to see interest in the real property. Another situation that this might occur is when the promises have been made in consideration of marriage. Finally, you should know that this will be true if there is a promise that one party will pay for the default, debt, or miscarriage of another party.

Ultimately, you have to remember that the last provision makes it clear that the surety bond needs to be in writing. If it is not in writing, it may not be valid and this means that the client is not going to be protected. Once the written contract is completed, it cannot be changed or altered. The courts will not allow it. And, you should know that the courts will prevent changes by writing, other memorandum, or oral testimony. This ensures that the contract will remain the same from start to finish.

Otherwise, you should know that there are no other general rules that govern surety contracts. Insurance companies are regulated by many laws and standards. This makes it possible for the insurance company to bind themselves to any contract using numerous methods. However, it is very simple. When you break it down, you will find that the concept is easy to understand. If a paper is signed by the president and secretary of a corporation and countersigned by the licensed agent of the company, the paper will be binding. It is important to remember that certain people are authorized to sign a surety bond under the terms of Powers of Attorney.

This means that certain people will be required to sign the document. It depends on the individual’s status in your company. You do not have to worry about using a specific form because there isn’t one. However, you may be able to add specific details to the paper. For instance, you can use dates, names, locations, and other things. This ensures that the document is more thorough and that will make it more beneficial for both parties.

When The Contract Is Completed

You need to understand that things are going to change when the contract is completed. There are numerous ways for the completion of the contract to be brought about. And, you have to understand that this will result in a discharge by performance. If you’re going to be involved in a surety contract, you need to find out what this means. Again, there are numerous ways for the contract to be discharged. The agreement may be terminated. You may agree with the client to eliminate the contract immediately.

Also, there is a change that it is impossible for performance to be achieved. Finally, statutory laws may get involved. It is pertinent to read between the lines before signing a surety contract. Failing to do so could result in major problems for your company. Never enter into a bond agreement until you’re positive that you fully understand the contract and your requirements.

It might be a good idea to consult with a lawyer. This will ensure that you’re able to gain a better understanding of the contract. If the contract is not good for your company, you should not sign on the dotted line.

The post Understanding The 5 Elements Of A Surety Bond Contract appeared first on Surety Bond - Construction & Commercial.

On this page, you’re going to learn a lot more about the expenses associated with surety bonds. Simultaneously, you’ll find out how much you’ll likely pay for a $10,000 construction surety bond.

Getting The Exact Price

Unfortunately, acquiring the exact price for a surety bond can be tough. You know that you need $10,000 yet there are many other factors at play. For instance, it is up to the bond underwriter to determine how much to charge. If you’re going to be acquiring a surety bond, you will have to work with an underwriter. That individual will study your company’s finances, history, and more. Once they’ve done that, they’ll determine how much of a risk your company is. Then, they’ll put a percentage on it. You will not be paying $10,000.

Instead, you will be paying a percentage of that amount. The percentage can vary from 1% to 10%. There is no universal price for surety bonds. Therefore, you have to be prepared to pay a different amount each time you acquire a bond. If you have good credit, there is a good chance that your prices are going to be lower. Legislation has been passed to ensure that surety bonds are required for municipal contracts in Ontario.

Therefore, you cannot avoid getting a surety bond. Make sure that your company is bonded so you can begin acquiring contracts and making money.

Average Cost Of A $10,000 Surety Bond

So, how much should you expect to pay for a $10,000 surety bond? Ultimately, it is going to depend on numerous factors. Your credit will make a difference.

Now before jumping into learning about cost, it would be worth noting that you pay for the bond when you get awarded the job or project. In most called you would be asked to present a performance bond (50% of 100%) along with a labour and material bond (50%) to guarantee your completion of the construction or project.

Simultaneously, you have to remember that the bond underwriter is going to consider your company’s finances, your locations, and your history. If you have good credit and your company is a lower risk, you will likely be required to pay 0.75 or 2.5% of the bond amount. Therefore, you would be looking at annual payments ranging from $100 to $250.

If your credit is bad, you will likely pay more. The percentage you’ll pay will be between 2.5 and 10%. Therefore, you will end up paying $250 to $1,000 each year. It is pertinent to take steps to minimize your costs. Otherwise, you’re going to be paying too much for surety bonds and that will come back to haunt you in the future. You can enhance the financial performance of your business by avoiding claims and keeping your credit in good condition.

In return, you’ll pay less for surety bonds and your company will have a much easier time succeeding.

Average Cost Of A $100,000 Contact

There is a chance that you’ll be required to obtain a $100,000 surety bond at some point. This likely means that the contract is going to be very lucrative for your business. With that being said, you need to obtain the contract as soon as possible. Just remember that the prices are going to increase. After all, the collateral is higher. Nevertheless, you won’t have to pay the amount in full. Again, you’ll find yourself working with a surety provider. And, you can guarantee that you’ll be able to find a good deal as long as you shop around enough.

Again, the company will analyze your history, your area, and your finances. Once they’ve done this, they’ll determine how much you’re going to be required to pay. However, you should expect to pay anywhere from $500 to $2,000. This is the average price of a surety bond for $100,000.

Factors That Will Impact Your Surety Costs

Ultimately, you have to remember that numerous factors are going to impact your surety costs. It is pertinent to make sure that you’re working diligently to ensure that you keep your costs to a minimum. The good news is that you can familiarize yourself with these factors and go from there. Below, you will find information regarding the factors that will impact your surety bond costs.

Financial Statements

First and foremost, you have to remember that the surety company is going to look at your company’s financial statements. There is always a risk that you’re not going to be able to live up to your end of the arrangement. If you cannot, there is a chance that you’ll be hit with a claim and a hefty penalty. Will your company be able to afford these costs? If not, there is a good chance that the surety company is going to be hurt. This is why the underwriter is going to analyze your financial statements.

They want to make sure that your company is financially sound. If it is, you’ll likely be able to cover the costs without too much trouble. In return, the risk for the surety company is minimized. With that being said, you have to remember that the surety company is going to analyze your company’s financial statements. Once they’ve done that, they’ll know how much of a risk they’re going to be taking working with your company. In return, they’ll know how much to charge.

If you’re able to perfect your financial statements, you can take steps to minimize your costs.

Liquid Assets

While you’re at it, you have to understand that the company is going to consider your liquid assets. They want to make sure that your company will be able to pay any penalties for not completing the contract in time. After all, the surety company does not want to shoulder this burden. This is why they’ll analyze your company’s liquid assets. If you have fewer liquid assets, there is a good chance that your prices are going to be much higher.

With that being said, you should take steps to maximize your liquid assets. Doing so is the best way to minimize your costs and avoid overpaying for surety bonds.

Industry Experience

The surety company wants to make sure that your company is going to get the job done right and on time. If they know that your company will achieve these goals, they’ll be taking a lower risk. This is why they’re going to analyze your company’s industry experience before moving forward. They want to make sure that the risks of a claim being filed are minimized. Therefore, they’ll be more likely to work with companies that have succeeded in the past.

If you’ve only been in business for a year, you’re likely going to be paying more. However, companies that have been in business for many years will likely pay less. Just remember that your historical performance will make a big difference too. If you have tons of claims, you can guarantee that you’re going to be paying a lot more. It is pertinent to stick with it. Continue working hard so you can expand your knowledge and experience.

Simultaneously, you have to do everything in your power to avoid surety bond claims. This combination will ensure that you’re able to minimize your costs for surety bonds.

Bad Credit: Can You Get A Surety Bond?

Many contractors fail to apply for a surety bond because they have bad credit. It is a fact that poor credit history can compromise the applicant’s ability to get approved for a surety bond. However, there are some surety companies that are willing to bond applicants with low credit scores. If you are looking to obtain a surety bond for long-term service or temporary project and you have a history of not paying your bills on time, you should still go through the application process. Below, you will discover more information about bad credit and surety bonds.

Some surety companies have programs specifically set up for businesses, individuals, and organizations with bad credit. These programs give those with poor credit rating access to some of the best surety bonds. But, you must know that there are some downsides to bad credit surety bonds. These downsides include higher premiums and stricter guidelines.

An applicant with bad credit must go through the same pre-approval process as applicants with good credit. The pre-approval process is very complex and can take several days to complete. The applicant must provide the surety company with his/her financial records, a current credit report, proof of a business license, and other important information. 

Even though some surety companies offer bonds to applicants with bad credit, the applicant must be able to prove they are capable of fulfilling the contractual agreement. In most cases, the obligee finances the project upfront. An investment amount is agreed upon during the contractual process. Once the amount is determined, the obligee will pay a percentage of that amount to the principal before the project is scheduled to begin. That money is utilized to fund the project, removing some of the burdens from the principal.

Location

There are other factors that can warrant higher premiums for surety bonds. One of these factors is the scheduled location for the project. If the project is going to take place in a high-crime area, the surety company will take this information into consideration. Many surety companies penalize surety bond applicants working in high-crime areas. The main reason behind that theory is because there are higher risks involved in working in areas where crime is prominent. Not only is the contractor and his/her employees at risk of becoming a crime target but also their equipment, tools, and machinery. 

Anyone familiar with the construction and development industries know the risks of working in areas knows for a lot of crime. Unfortunately, these areas have a lot of criminals that are always trying to get their hands on stolen goods that can be sold for cash. All projects in the construction and development industries utilize heavy equipment, machinery, and tools. And, many times these items are too large to transport from the job site to a safe location after the work is done each day. So, it is left on the job site where it will be exposed to risks.

Many contractors utilize GPS tracking devices and security camera systems to monitor the job site and equipment. These electronic advances help reduce the risk of crime but they are not perfect. Some criminals are just too smart for their own good. So, they can pull off a criminal heist without a hitch. All of this information should be documented in the contractual agreement. 

The Agency/Brokerage

Ultimately, there are many surety bond agencies in Canada. There is a good chance that you’ve worked with one or two in the past. Well, you have to understand that every agency is different in one way or another. Therefore, you cannot stick with the same company every single time. Doing so could result in your company paying too much for surety bonds. You have to remember that the prices can vary from one surety bond agency to another.

Therefore, it is in your best interest to shop around. If you’re able to find the right surety company, there is a good chance that you’ll get a better deal. This ensures that you’re going to be spending less to obtain the surety bonds that you need. This is crucial for your business. Failing to obtain cheaper surety bonds could put your company at risk of facing an untimely demise. Thankfully, you’ve found us. We can help. We have strong relationships with some of the best surety companies in Canada.

By working with us, you can guarantee that we’ll get you in touch with an excellent surety company in your area. Contact us immediately to get started!

The post Understanding The Costs Of Canadian Construction Surety Bonds appeared first on Surety Bond - Construction & Commercial.

Performance Bond

Although payment and performance bonds often work in correlation with one another, they’re much different in some ways. The performance bond helps to provide the client with peace of mind, by ensuring that the contractor will fulfill their duties, as initially described in the contract. The performance bond helps to protect the client, while the payment bonds protects subcontractors and others, who expect to be paid by the contractor.

Payment Bond

As mentioned above, the payment bond is responsible for protecting the contractor’s partners, including subcontractors, laborers and suppliers. This bond ensures that all of these businesses or individuals will be paid in full for the services or materials they provided for the project in question. If these groups are not paid in a timely manner, they can file a claim and work to obtain compensation for their losses.

Three Parties

When it comes to performance and payment bonds, you should realize that three parties would be involved. Although the three entities differ from one bond to the next, they’re nearly identical. Below, you will learn about the three groups for each.

• Principal – The principal is always the contractor. This entity is the one that is held responsible in all circumstances and is required to acquire the bond.
• Surety Company – The surety company is the company, which is providing the principal with the bond. When doing so, they are also backing up the principal’s agreement and claims, but do so for a fee.
• Obligee – The obligee varies depending on the type of bond in question. With the performance bond, this is normally the protect owner. In terms of the payment bond, there could be more than one obligee. It could include the subcontractor, supplier and laborer.

By learning about these three parties, you can figure out precisely where the responsibilities lie and who to contact in the event of trouble.

When To Obtain Performance And Payment Bonds

Before rushing ahead and attempting to obtain these bonds, you should realize that it is not possible to do so right away. Instead, you will first need to obtain a bid bond and place your bid on the project in question. If you win the bid, you will then need to obtain these bonds. Generally, you will be required to obtain all three bonds from the same surety company. Just remember that the bid bond comes first and the remainders come right before the work begins.

Analyzing The Cost

Eventually, you will need to figure out the price of the surety bonds. The truth is that the price is never universal and will depend on various factors, including the finalized amount of the contract. Of course, the most important factor of all will be the contractor’s personal credit score. With a bad credit score, you’ll be required to pay more expensive fees and vice versa. If you’re lucky, you may be able to obtain fees as low as 1 to 3%. Even those that have terrible credit will be able to obtain these bonds, but the process will be a little more strenuous and they’ll be required to pay more in the long run.

Get Your Surety Bonds Now

When searching for a surety company to purchase your performance and payment bonds from, it is crucial to do start by doing extensive research. Do not only base your decision on the annual premium rates, but this can prove to be a huge mistake. Stick with reputable underwriters that have a long tenure in the surety bond industry.

Other useful posts

• Guide to finding the perfect bonding company
• The Importance Of Your Surety Bond Claims Advocate
• A comprehensive guide on how to Become bonded contractor
• Other types of bonds
• Performance bond insurance: Welcome to the big leagues
• What is a bond?
• What do construction bonds cover?
• Surety bond claims – How do surety claims work?
• What does it mean to be bonded?
• Qualifying for a surety bond as a contractor
• Why are construction bonds required?
• How to apply for a construction bond – A complete contractor’s guide
• How much do construction bonds cost?

The post Breaking Down Performance Bonds And Payment Bonds appeared first on Surety Bond - Construction & Commercial.

First step – Pick your bond and apply.

It is very important to know what bonds you require prior to looking into bonding. Each job has specific requirements and may require the contractor to obtain a certain limit of bonding and insurance prior to even bidding on the job.

In most cases, during the bidding phase (Which is the first phase of any bonded job), contractors are required to present a bid bond from a licensed Canadian surety provider. In the event the contractor wins the bid by coming low or being selected to do the job, he or she will be required to present a performance bond to guarantee the completion of the job.

Along with the performance bond, the hiring party may also require labour and material bonds to further protect the income of all the trades that are part of the job.

To begin, you can select the bond that applies to you. If you are new to bonding, take some time and read through each type of bond. The more you learn, the better it is. Once you are comfortable with the bond you would like to apply for, you can request a quote by clicking here or by calling us toll free: 1-888-480-7677.

• Construction Bid Bonds – Financial Security for Contract Bidding.
• Maintenance Bonds – Provides protection for a lengthier period of time.
• Performance Bonds – Guarantee of work being completed.
• Payment Bonds – Provides protection for payment workers.
• Subdivision Bonds – A bond used for subdivision development.
• Site Improvement Bonds – Making improvements to an existing project.
• Labour And Material Bonds – Helps cover Labour and Materials Cost.
• Surety’s Consent or Agreement to Bond – Agreement with the Bond Issuer.
• Bad Credit – Bonding for Businesses with poor credit.
• Fiduciary Bonds – Similar to Insurance (Protects your business)

Contractor License Bond

Many individuals will mistake the contractor license bond with other types of bonds, especially performance bonds. There is a significant difference in these two types of bonds, with the performance bond solely guaranteeing that the terms and agreements within a contract are fulfilled accordingly. Now, the contractor license bond guarantees that the contractor will operate solely in compliance with their province contractor’s license.

Application Process

The first step of the process will involve completing an application and submitting it to a bond company. The application contains important questions pertaining to the bond type, amount, and the province that your company is located. It is crucial to input the correct answer into each box and never leave anything open for questioning.

Criminal Background Check

The bonding company will run a comprehensive criminal background and credit check on all contractors. This step is a necessity and a common part of the bonding process. There is a huge risk for being denied a bond, if you are an extensive criminal history. Once the records are returned and cleared by the bonding company, you will obtain your bond.

License and Regulations Department

Once you have your bond in hand, you will need to complete a license application, which can be obtained from your local provincial government entity. Submit the application, along with the bond and then the rest will be a waiting game.

The Cost of Contractor License Bond

You will be expected to pay an annual premium for the contractor license bond, which is mostly based on your credit history. If you have a high credit rating, you will end up paying the average rate, which will range anywhere from 1-3% of the bond amount. Unfortunately, those contractors with a low credit rating, you will be expected to pay around 5-15% rate, which is significantly higher. It is important to note that your criminal history may also affect these rates.

Low Credit Scores

Contrary to popular belief, it is possible to get approved for a bond, if you have a low credit score. Of course, you should expect to pay a significantly higher annual premium. The surety company will base this rate on your personal credit history, but it is possible to obtain a bond, even with bad credit.

Posting Collateral

While it is not always necessary to post collateral for a bond approval, under some circumstances it is a necessity. Collateral can actually be utilized as a wonderful negotiating tool, so before giving up on getting bonded, you should pledge your assets, in an attempt to get approved. There are some bond companies out there that will work with contractors that have poor credit score and offer competitive annual rates, as well.

Contract Guarantees

The contractor license bond does not guarantee specific contracts, since these agreements are made by the contractor and the project owner. In fact, you will need to apply for separate surety bonds for these contracts. As mentioned above, the contractor license bond will only guarantee compliance with the provincial license.

Does Not Cover Multiple Provinces

If you plan on conducting business in multiple provinces, you will need to obtain a separate construction bond for each job. Before initiating the bonding process, be sure to check with each provincial entity for details on bond requirements. Not all provinces and territories require surety bonds, so there will no need to go through the process again.

Conclusion

To save yourself a lot of time, if you plan on conducting business in multiple Canadian provinces and territories, be sure to enquire about the bond requirements, when you are completing the initial licensing process. As you can see, it is genuinely not that difficult to obtain your contractor license bond, but you will need to be diligent doing so. Continue researching this very important topic, if you have not received the answers you were seeking.

Other useful posts

• Guide to finding the perfect bonding company
• The Importance Of Your Surety Bond Claims Advocate
• Breaking down performance and payment bonds
• Other types of bonds
• Performance bond insurance: Welcome to the big leagues
• What is a bond?
• What do construction bonds cover?
• Surety bond claims – How do surety claims work?
• What does it mean to be bonded?
• Qualifying for a surety bond as a contractor
• Why are construction bonds required?
• How to apply for a construction bond – A complete contractor’s guide
• How much do construction bonds cost?

The post A Comprehensive Guide On How To Become Bonded Contractor appeared first on Surety Bond - Construction & Commercial.

Let’s take a look at performance bonds along with other the most common forms of surety bonds used in construction:

Performance Bond

A performance bond ensures that the contractor will complete all work specified in the contract to an acceptable standard. Contractors generally fail to complete contracts as a result of bankruptcy.

Payment Bond

A payment bond ensures that the contractor will pay for any construction materials or labor that might be necessary to fulfill the contract.

Maintenance Bond

A maintenance bond ensures that the contractor will maintain the site well and do any repairs necessary. Contractors might be required to perform maintenance as a result of weather damage or damage resulting from construction.

Bid Bond

Bid bonds are required when there are a number of contractors competing for a big contract. The bid bond is needed to ensure that if the winning bidder should later be unable to begin work on the project, the party issuing the contract will not suffer a loss.

Site Improvement Bond

Sometimes a contract might demand specified site improvements apart from the main construction work. For example a contractor hired to build a new wing of a building may also be required to add double glazed windows to the entire building.

Subdivision Bond

A subdivision bond is the same as a site improvement bond but refers to the construction of a whole new structure.

Other useful posts

• Guide to finding the perfect bonding company
• The Importance Of Your Surety Bond Claims Advocate
• Breaking down performance and payment bonds
• A comprehensive guide on how to Become bonded contractor
• Other types of bonds
• What is a bond?
• What do construction bonds cover?
• Surety bond claims – How do surety claims work?
• What does it mean to be bonded?
• Qualifying for a surety bond as a contractor
• Why are construction bonds required?
• How to apply for a construction bond – A complete contractor’s guide
• How much do construction bonds cost?

The post Performance Bond Insurance: Welcome to the Big Leagues appeared first on Surety Bond - Construction & Commercial.

Jeanne Grisetti: Hi I’m Jeanne Grisetti.

Ron Philleo: Hi and I’m Ron Philleo. And we’re with Philleo Agency Insurance. Today we’re going to talk a little bit about bonds.

Jeanne: Ron we get a lot of calls about Bonds. What is a Bond?

Ron: That’s a good question Jeanne. A bond is basically a promise that you’re going to fulfill a contract that you’ve entered into. And there’s a third party that insures your promise basically. And they’re going to say, yes, you can fulfill this contract, and we’ll get your background and your ability to perform the work. We’re confident that you can do it on time and in budget and that you’re going to pay subs and all the material costs. And if you fail to do that we will step in and whoever is requiring this work to be done, we’ll make sure that they’re made whole if you fail to fulfill your promise under the contract.

Jeanne: So it sounds a little bit like insurance, so how …  is it like insurance?

Ron: Well, insurance pays for, let’s say a mishap or an accident and we pay for that directly and we make you whole again if you have insurance. This is a little bit different. If I’m the person taking out the Bond I’m assuring a third party that they’re going to be made whole If I don’t do my job. I have a little more control over a Bonding situation whether a Bond is used or not because I’m the one that decides if I’m going to be able to fulfill my obligation or not. Insurance is more for an accident like a fire or collision or something along those lines where I need to be made whole again. This is a little bit different.

Jeanne: So if I’m understanding you right, a contractor goes into a contract and they would then get a Bond to assure the company that they have the contract with that they are capable of and have the resources necessary to perform the work. And if something should go wrong that the company would be able to recover their costs.

Ron: Exactly.  That’s were the Bonding company would step in and say, “Contractor A couldn’t do his work we’re going to make you whole so you don’t have a problem.  We’ll step in and find someone who can do the job. We’ll pay the additional costs and everything.” However, keep in mind that they (the bonding company) will go back after the original contractor who they bonded to recover their losses and that’s how it’s different than insurance.

Jeanne: Yeah. It’s very different from insurance because insurance pays the claim. You’re saying that with a Bond if there’s a payment on that bond that the actual the contractor will then have to, they’ll go after… the bonding company will have to go after the contractor is that right?

Ron: That is correct and that’s a big difference, We’ll talk more about that in future videos. Today’s video is meant to give a basic understanding about bonds.  Watch for our other videos on how to obtain a bond and additional information.

Other useful posts

• Guide to finding the perfect bonding company
• The Importance Of Your Surety Bond Claims Advocate
• Breaking down performance and payment bonds
• A comprehensive guide on how to Become bonded contractor
• Other types of bonds
• Performance bond insurance: Welcome to the big leagues
• What do construction bonds cover?
• Surety bond claims – How do surety claims work?
• What does it mean to be bonded?
• Qualifying for a surety bond as a contractor
• Why are construction bonds required?
• How to apply for a construction bond – A complete contractor’s guide
• How much do construction bonds cost?

The post What is a Contractor Bond? appeared first on Surety Bond - Construction & Commercial.

Different Types And Different Coverage

When it comes down to it, contractors should understand that the term construction bond is actually very broad, click here to read a detailed guide on what exactly Surety Bonds are. The term is utilized frequently and universal, but it covers a handful of different types of bonds. For instance, construction bonds can refer to bid, performance and payment bonds. In order to find out precisely what is covered, you need to break it down into greater detail and examine the precise bond in question. Below, you’ll learn about the different types of construction bonds and what each covers.

Bid Bond

A bid bond is a guarantee for the project owner or obligee that the general contractor, if awarded the bid project, will fulfill the commitment to completion. If at any time the contractor bails out of the project for financial reasons or does not complete the project by the completion date, the obligee will have the option of suing the surety (underwriter) and principal (contractor) or both. If the surety finds in favor of the project owner, the full amount of the bond and other expenses will be awarded.

Performance Bond

The bid bond is generally required, in order for the contractor to be eligible for the project. The performance bond is even more vital for the client. The performance bond guarantees that the contractor will complete the project and fulfill the contract following the guidelines set out in the initial agreement. If the contractor is unable to live up to their end of the bargain, the surety will be able to proceed in three ways. They can complete the contract on their own, select another contractor or allow the owner to complete the project and pay for the costs. In this sense, this bond provides coverage in the event that the contractor is unable to fulfill their duties.

Payment Bond

The payment bond is substantially different from the two mentioned above. This type of bond actually covers the payment obligations between the contractor, subcontractors and suppliers. When the contractor obtains a payment bond, they guarantee that they’ll pay each and every subcontractor and supplier, which has worked on the project in question. This also provides the owner with added reassurance, since they can rest assured knowing the suppliers and subcontractors will continue to maintain a steady performance.

Overall

All in all, construction contractor bonds are capable of covering a wide range of different subjects. In order to figure out precisely what will be covered, it is essential to analyze the specific type of bond in question. Each bond is unique and the coverage will vary significantly. By knowing what needs coverage, you will easily be able to find a bond, which will provide you with the peace of mind you demand and deserve.

Other useful posts

• Guide to finding the perfect bonding company
• The Importance Of Your Surety Bond Claims Advocate
• Breaking down performance and payment bonds
• A comprehensive guide on how to Become bonded contractor
• Other types of bonds
• Performance bond insurance: Welcome to the big leagues
• What is a contractor bond?
• Surety bond claims – How do surety claims work?
• What does it mean to be bonded?
• Qualifying for a surety bond as a contractor
• Why are construction bonds required?
• How to apply for a construction bond – A complete contractor’s guide
• How much do construction bonds cost?

The post What Do Construction Bonds Cover? appeared first on Surety Bond - Construction & Commercial.

A contractor surety bond is generally utilized to help ensure that both sides of the contract will live up to their ends of the arrangement. Of course, the world is not a perfect place and it is always possible for one side or the other to pull out or fail in one way or another. If this occurs, it is possible that a surety bond claim will occur. What precisely is a surety bond claim and how does it work? Below, you will learn all about the claim process.

Plaintiff or Complainant

If at any time the contractor or principal breeches on the terms and conditions of the contract, the obligee or project owner can file a claim with the surety. The obligee in this case will be known as the complainant, since they are the responsible party for suing the surety company. In some cases, the project owner has the contractual right to sue the principal, surety, or both.

How Is The Claim Filed?

The majority of the time, it will become the responsibility of the project owner to file the complaint. This can take place for a number of different reasons. The contractor may skip town and run off with the client’s down payment or fail to finish the project in a timely manner and ignore their calls. Also, a subcontractor or supplier, which has not been paid, may end up being forced to file a complaint again the contractor. If you fit into one of these categories, you will need to figure out precisely how the claim is filed, keeping in mind that your surety bond has NOT expired. To learn more about construction bonds expiring, click here.

In order to move ahead, you will need to find out which surety company bonded the offender in the first place. Generally, this information can be found within the contract. If not, you may need to go online and scour through the government database, until you’re able to track down the bonding company’s information and contact details.

Contact The Bonding Company

Once you’ve managed to obtain the surety company’s contact information, you should make direct contact with their claims advocate department right away. During this conversation, you should inquire about the claims process. In most circumstances, you will be required to submit a letter, which contains the details of the claim and provide proof that you lived up to your end of the bargain. Providing the bonding company with as much information as possible is highly recommended and will help to prevent delays in the future.

Once you’ve provided the company with this information, they’ll begin investigating the claim. Eventually, they’ll make a ruling and will either rule in the favor of the contractor or the project owner. If the surety company rules against you, it is always possible to take things one step further and enter into litigation against the contractor.

It is the surety’s responsibility to begin an immediate investigation after an alleged default has been made. It is always in the surety company’s best interest take immediate action, since this can push the contractor to keep the project moving and likely save themselves money in the process.

Watch the video below to learn more about how a claim is filed and dealt with.

Who Pays?

If you’ve submitted enough compelling evidence, it is highly probable that the surety company will rule in your favor. This is substantially easier than attempting to enter into litigation against the contractor or the surety. Once you’ve come out victorious the surety will pay you rapidly. Then, they’ll attempt to regain the collateral from the contractor, in order to cover their own losses.

Of course, the surety company has a few options and may instead decide to take matters into their own hands. If they decide to follow this route, they’ll be able to find a brand new contractor, who will then carry out the project, until it has completed in a satisfactory manner.

Who Is Sued?

Most of the time the surety company will agree that it is in their best interest to conclude the claim as quickly as possible. This will usually result in the bonding company ruling in the favor of the project owner very rapidly. Of course, this isn’t always the case. If the bonding company rules in the contractor’s favor, it is possible for the owner to file a suit against both entities. Otherwise, the surety can rule in the owner’s favor and sue the contractor, in order to recover their losses.

Conclusion

Although the bonds are set in place to attempt to encourage success and quell problems, a problematic situation may still occur. Rest assured knowing that a lawsuit is not your only solution, in the event of a problem. Instead, you should first speak with the ConstructionBond Canadian Construction bonding company and allow them or speak to your broker to initiate a further investigation regarding the claim. If they rule in your favor, the problem will be rectified. If not, you may need to sue and attempt to recover your losses, but hopefully it’ll never go that far.

Other useful posts

• Guide to finding the perfect bonding company
• The Importance Of Your Surety Bond Claims Advocate
• Breaking down performance and payment bonds
• A comprehensive guide on how to Become bonded contractor
• Other types of bonds
• Performance bond insurance: Welcome to the big leagues
• What is a bond?
• What do construction bonds cover?
• What does it mean to be bonded?
• Qualifying for a surety bond as a contractor
• Why are construction bonds required?
• How to apply for a construction bond – A complete contractor’s guide
• How much do construction bonds cost?

The post How Does A Contractor Surety Bond Claims Work? appeared first on Surety Bond - Construction & Commercial.

The Definition

In order to better familiarize yourself with the term, it is essential to look at its definition. Although the term has a handful of different meanings, the most common is that bonded means you’ve been fixed to something securely. When it comes to surety bonds, being bonded means that you’ve legally bound yourself to a contractor and guarantee that you’ll live up to your end of the arrangement. Of course, there are numerous different types of bonds, so the true meaning will vary depending on the type of bond in question.

Bidding

As a contractor, you’ve likely familiarized yourself with the process of taking on a project. First, you’ll be required to obtain a bid bond. Upon obtaining this bond, you will actually be bonded to the agreement set out in the bid. In this sense, you’re bonded to the initial bid and also agree to the terms behind why you’ll need to obtain the required bonds, if you’re selected as the winner of the project. If you fail to do so, you will be forced to give up the bond amount.

Satisfactory Performance

Performance bonds are ultimately very much different and will bond the contractor to a handful of different agreements. One of the most important is the fact that this type of bond will force the contractor to guarantee that they’ll follow through with the project and deliver satisfactory results. This is just one of the agreements, which will be set in stone through a performance bond, but it is definitely one of the most impactful.

Time Efficient Completions

As an owner, you will expect your development project to be completed in a time efficient manner and you should accept nothing less. Surety bonds guarantee satisfaction in all aspects of the contract and if at any time the project owner becomes dissatisfied with the contractor’s inefficiency, they can simply file a claim with the surety company. Hopefully, the project owner never has to take this drastic step to ensure completion of the project. In any case, the bond will fully protect the project owner from financial loss.

Making Payments

When bonding yourself with a payment bond, you’re actually making a commitment to your subcontractors and suppliers. Without the bond, these individuals would have very little reassurance and would not be protected, if you failed to pay them in a timely manner. However, once you’ve bonded yourself with a payment bond, you’re legally guaranteeing to pay these entities the agreed upon amount, within the allotted time period.

Conclusion

Never do business with a contractor that is not bonded, because there are thousands of scammers out there that will take your money and give you nothing in return. Remember, surety and Canadian Construction bond companies do not bond scammers, only reputable companies.

Other useful posts

• Guide to finding the perfect bonding company
• The Importance Of Your Surety Bond Claims Advocate
• Breaking down performance and payment bonds
• A comprehensive guide on how to Become bonded contractor
• Other types of bonds
• Performance bond insurance: Welcome to the big leagues
• What is a bond?
• What do construction bonds cover?
• Surety bond claims – How do surety claims work?
• Qualifying for a surety bond as a contractor
• Why are construction bonds required?
• How to apply for a construction bond – A complete contractor’s guide
• How much do construction bonds cost?

The post What Does It Mean To Be Bonded In The Construction Industry? appeared first on Surety Bond - Construction & Commercial.

Various Requirements

Before going any further, you should realize that there are no universal requirements. The specifics vary from one bonding company to another. Some bonding companies will have a very strict procedure, which will make it much more difficult to qualify. Others will be much more lenient and will be more than willing to offer bonds to nearly any contractor, who makes contact with them. With this in mind, it is essential to consult with your surety bond provider to find out their individualistic requirements.

Bonding History

Most project developers or contractors will tend to deal with the same surety company throughout their work history. Once the surety becomes familiar and gains trust in the general contractor, surety bonds will be approved in a more time efficient manner. If you have a positive history of dealing with subcontractors, banks, vendors, and other project owners, you will be expeditiously approved for a surety bond.

Financial Stability required to qualify for surety bonding

The majority of surety companies will put a strong emphasis on a company’s current financial situation. If the company is nearly bankrupt, has had a surety claim, or has very little collateral, it’ll be significantly more difficult for them to qualify for construction bonds. As long as your company is in good shape and you have the statements to prove it, you shouldn’t have much difficulty meeting the required qualifications. Also, remember that your company’s credit history will be evaluated. An immaculate credit history would all, but guarantee, qualification.

Reputable Contractors

In order to get approved for a bond, the general contractor should have reputability in the community. By having a positive history of fulfilling obligations and dealing fairly with previous and former project owners, you will be improving your chances of approval. A well-managed and organized run business will show the surety that you are a responsible business owner that keep promises and completes obligations in a time efficient manner.

Company And Employee Longevity

Many times, a bonding company will look carefully at the company’s employees and their longevity, before making their determination. Surety companies will give your company more credence, if your managers and foremen have been with you for an extensive period of time. However, if your company’s employment turnover is high, the surety may see your company in a negative light. If you’re able to prove that your company is capable of withstanding the test of time, the surety company will take note and will be much more likely to do business with you.

Company Capacity And Potential For Growth

Whether you’re operating a small business or one of a massive scale, you need to understand your limitations. Surety companies are incredibly intelligent and they’ll recognize right away, if you’re biting off more than you can chew. With this in mind, you need to know your company’s capacity and limitations. Do not try to take on a project, if your company cannot handle it in a reasonable manner. Also, it is wise to prove that your company has potential for growth. If you’re able to do this, the surety company will be more apt to do business with you, since they’ll know you can succeed and will be likely to return for more bonds in the future!

Conclusion

Most contractors with a high credit rating and reputable business history can get approved for a surety bond. To speed up the process, you need to provide the surety with all the required information in a very timely manner. The longer you delay complying with the requirements, the longer it will take to get the surety bond aka construction bond cost.

Other useful posts

• Guide to finding the perfect bonding company
• The Importance Of Your Surety Bond Claims Advocate
• Breaking down performance and payment bonds
• A comprehensive guide on how to Become bonded contractor
• Other types of bonds
• Performance bond insurance: Welcome to the big leagues
• What is a bond?
• What do construction bonds cover?
• Surety bond claims – How do surety claims work?
• What does it mean to be bonded?
• Why are construction bonds required?
• How to apply for a construction bond – A complete contractor’s guide
• How much do construction bonds cost?

The post Who Qualifies For Surety Bonds/Construction Bonds? Does Credit Matter? appeared first on Surety Bond - Construction & Commercial.