Construction is commonly regarded as a risky endeavor. A contractor's firm may fail to complete a project due to an economic recession, labor issues, delivery delays, equipment issues, and many other challenges, putting projects on hold.
If you have a construction business, you may have to obtain a surety bond for different projects to meet the state's requirements. Surety bonds have been an excellent tool for many years and are still often utilized today. Let's have a look at what surety bonds are and how important they are to your construction company.
What is a Surety Bond?
A surety bond ensures that contractors will complete the job and reimburse their subcontractors, laborers, and component suppliers, giving project owners economic security and a building guarantee. In other words, a surety bond is a method for transferring risk wherein one party assures another that a third party will uphold the terms of a contract.
A construction surety bond often involves three parties: the principal, the obligee, and the surety. The acquisition of a surety bond is frequently one of the conditions for obtaining contractor licenses, and the contractor must make the upfront payment of the bond price to insure the bond.
Surety bonds do not serve as insurance or protect the contractor from responsibility. Rather, they act more as a form of credit. Claims may be made against the surety if a bonded provider cannot carry out their contractual obligations. The contractor is accountable for paying the surety firm, while the surety will cover legitimate claims. If the contractor doesn't conform, the surety firm may take legal action to reclaim the money owed.
Why Are Surety Bonds Important For Construction?
1. It Enables You to Work Legally
For several reasons, construction bonds are crucial to builders, subcontractors, and the government. Any federal construction project costing $150,000 or more requires a surety bond. To get the contract, a contractor must obtain a surety bond and apply for a contractor's license to the appropriate state agency.
2. You Can Grow Your Business
Construction contractors can benefit from acquiring surety bonds because many selective clients and project owners will only agree to employ licensed, bonded, and protected businesses. Therefore, having the necessary license and bonds in existence could assist in growing the clientele and company substantially.
3. Reduces Payment Complications
Manufacturers and subcontractors appreciate surety bonds. Vendors and contractors face the danger of not getting paid for their work if something goes wrong with the projects they are working on. It can be helpful to ensure that the general contractor has a surety bond in place because it enables suppliers to make bond claims if they are not promptly paid for their finished work.
4. Helps in Risk Management
In any major project, especially a valuable one, like a building project, risk must be managed adequately. You can safeguard yourself from certain risks associated with these projects by getting surety bonds. You can safeguard your finances and guarantee that your project is completed on schedule.
5. Helps to Protect Credibility
The public can be confident that a contractor has maintained strict standards set by an independent third party if they offer a surety bond. To ensure that a contractor performs as promised and will pay employees, vendors, and subcontractors, the surety bond company commits its resources.
Having a surety bond gives the project owner peace of mind that the contractor has a financially stable business with the expertise required for the particular project. In addition, pre-qualification for surety bond provides security through the bonding process, which is a crucial advantage.
Surety bonds are essential to the efficient operation of your organization. If you are a contractor obliged to get surety bonds, you should ensure that you adhere to the laws and deliver on your commitments to prevent claims from being made against you.
For more information on surety bonds, contact us at Bondon Insurance Services. Finding the best choice to protect your company does not have to be challenging. Get a quote by giving us a call today!