Construction companies often need bonds to meet industry regulations. There are several types of bonds in construction. Each bond has its own purpose for the company, so it’s important for construction companies to understand when and why they need them.
Payment, Performance, and Supply
As seen on Daniels Insurance Inc, contractor shortcomings can incur losses to the owner of the project. This is where performance and payment bonds step in and make sure the project keeps going. Performance bonds focus on project completion quality while payment bonds ensure payments to material suppliers and subcontractors. Many large public projects require payment bonds. On the flip side, a supply bond protects the contractor who purchases necessary supplies.
Site Improvement, Subdivision, and Maintenance
These bonds are required for specific projects. For example, a subdivision bond is important to repair a street in a subdivision. Many renovation projects use site improvement bonds. Pay for project repairs after the fact with a maintenance bond.
Bid and Contractor License
These final two bonds are a crucial part of doing business. The state requires contractors to have a contractor license bond to operate. Many project owners then require bid bonds when the contractor submits their financial proposal.
Understanding the types of bonds in construction can ensure you have the right bonds at the right times. They are a necessary part of doing business in the industry.