Bonding For Construction: Assuring Payment And Performance For Construction Projects

The construction business contains a lot of risks

, financially. Failure to perform on the part of the contractor or his staff results in much stress and lost time and money, spiraling down to even more losses for the project owner thereafter. Bonding for construction protects owners and developers from such a mess. The legal instrument ensures them compensation for losses incurred.

What do I need to know before applying for bonds?

In order to get bonding for construction you need an assessment from a financial instruction. You can also get it from a crediting firm, and they will calculate the project's overall risk. This will include everything from the contractor's track record in completing projects on time to what type of financial stability the company has had over the years. Then an underwriter will decide if a bond should be issued.

The government will mandate the bonding for construction, but only if the agreed payment reaches a certain threshold. This process will run smoother if you bring all the supporting documents from the beginning.

What is the significance of bid bonds?

Bonding for construction, in the form of a bid bond, is required for most projects. It formalizes the agreement among the project owner, the bonding company and the contractor.

In relation to the owner, this bonding for construction signifies that the pre-requirements of the project have been approved by the bonding company. So there shouldn't be a problem funding the entire operation after it has passed.

When it comes to the contractor, he/she will be expected to perform the tasks in the contract for the price in the contract. If the owner avails a performance bond, replacing his/her services will be simple.

Just remember to submit the bid bonds upon bidding, because if you don't it might not be approved. You will end up dealing with various complications and delays.

Why is a performance bond important?

Erring contractors have a tendency to not deliver work on time if they're handling multiple projects simultaneously. Project owners stand to incur losses, especially if their clients depend much on the structures to be erected. A performance bond guarantees that the owner or developer won't shell out money for switching contractors in completing the task, provided that the original contractor fails to deliver.

The bond somehow assures owners that their hired contractors will perform. Erring contractors come out as the biggest losers. They are at risk of not receiving payment for the work done, since they failed to honor the initial contract - the project terms they agreed to fulfill.

Is there a need for a payment bond?

When you own a construction company you're constantly dealing with suppliers and subcontractors. It might be wise to get a payment bond in case the contractor doesn't provide operational fees to their staff.

This compels the contractor to pay his staff an agreed amount, and if he or she doesn't you would have a good court case. Plus, his overall image as a professional will be tarnished. The end result is a loss of clients.

In the end, bonding for construction is extremely important to utilize. After all, monitoring the progress of each project can be complex. The good news is; if you have bonding for construction your finances will be covered, and the work that is done by people you hire.

by: Socrates De Souza.

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