As someone, who works within the construction industry, you should wholeheartedly understand the number of problems that could arise. At any moment, a small error could be made and it could result in very detrimental and incredibly costly damages. This is why it is so important to invest in construction bonds. Of course many people are not entirely familiar with these bonds and what they cover. Within this guide, you’ll be able to find out.
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.
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.
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 setout 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.
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.
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.
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- Surety bond claims – How do surety claims work?
- What does it mean to be bonded?
- Qualifying for a surety bond as a contractor
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- How to apply for a construction bond – A complete contractor’s guide
- How much do construction bonds cost?