Construction bonds are necessary for the construction industry. When contractors perform work for homes or businesses, a bond is a contract between the contractor, the client and a bond issuer. The bond issuer’s role is to ensure that the work gets done.
Here is what you need to know about popular bonds in the construction industry.
Payment and Performance Bonds
If you have a contract that exceeds over $100,000, then you need a secure payment bond. This ensures that the subcontractors and the material suppliers receive compensation for their contribution. In addition, it protects the project owner from having to assume the costs if the contractor does not pay.
Generally, you would couple a payment bond with a performance bond. The performance bond guarantees the quality promised to the owner of the project. If the project is not up to standards or takes too long, the owner can claim against the bond.
Project owners often allow multiple contractors to bid on a project. Often, the project owner will want to obtain a bid bond first. If the owner accepts your proposal, then you cannot raise your rates. You have to fulfill your promise on the bid terms.
Both contractors and project owners need to have a construction bond when it comes to the construction industry. Understanding the multiple types of construction bonds is critical for all parties involved.