Construction contracts between parties often demand a financial guarantee that will protect against loss in the event of disruption of work or failure to meet contractual obligations. A construction bond us the type of surety bond that will ensure the bills for the project get paid. There are five primary things to know about this type of guarantee.
A Simple Breakdown of Bonds
- Investors are interested in the benefits of the bond, while contractors rely on them for soliciting business and securing government construction projects.
- Bonds protect those with a vested interest in the financial obligations of the contract, as well as the expectation that the will be done according to the terms of the agreement.
- Contractors who submit bonds offer their clients a guarantee of the ability to meet the demands of the contractual policy.
- Both the contractor and the surety (bondholder) are held liable when any condition of the contract is not met.
- The three main types of construction bonds involve payment, bid, and performance.
The professionals at Daniels Insurance Agency advise that contractors review job or project requirements carefully to ascertain the need for a bond. If so, the contractor should have a bid bond from the surety agent before submitting the proposal. The remaining bonds or performance and payment can be secured following a bid’s acceptance.