If you are going be working in the construction industry, you need to know about surety bonds. Surety bonds play a vital role n construction projects and you need to understand what types of bonds you might have to get. There are many construction professionals who know they have to get bonds, but do not understand them and this is something that you should avoid.
Contractor License Bonds
Before you are able to work on any projects, you are going to need a contractor license bond. Depending on the state you are in, a contractor license bond may be required by law. If you do not have this bond, it is possible that you will not receive a license. If you attempt to work on construction projects without a contractor license bond, you could face serious repercussions such as legal action, penalties and the revocation of your license.
Another common surety bond used in construction projects is the bid bonds. As the name would suggest, this bond is often required when a bid for a project is made and should be provided with the financial proposal of the bid. There are many project owners who require all potential contractors to have a bid bond before they will accept their bid on the project.
This bond is often required because it will guarantee that the contractor enters the project for the original amount bid. The bond places good faith in the contractor and ensures the bid terms are upheld once the project has been awarded.
If a contract is going to exceed $100,000, the federal Miller Act requires all construction professionals to have payment and performance bonds. The payment and performance bonds will also be required if the project is publically funded. The payment bond will ensure that the material suppliers and the subcontractors are all paid for their parts of the project.
A payment bond offers peace of mind to the project owner because it ensures that they are not liable for the costs if the contractor is unable to pay. The surety will be liable for the payments if the contractor is unable to make payment. However, there is generally a clause in the surety bond that states that the contractor will reimburse the surety company if they have to pay out.
Performance bonds are generally grouped with payment bonds because they protect the project owner. Performance bonds will ensure that quality of the project as it is outlined in the contract. The bond will also cover the timeframe for the project and ensure that it is upheld. If the project does take longer than expected or has been completed to an unsatisfactory standard, the project owner can claim from the bond. The claim will have to be validated before the bond pays out.
There are many bonds that you might have to get for any construction project which hcgms.org talks about. It is important that you understand what the most common are and why you should consider getting them.