subject: The Importance Of Performance Bonds [print this page] When contractors start new projects they usually obtain performance bonds. They are crucial to the overall success of your business, and without them you could be hurting the company as a whole. You should understand why performance bonds are so important, which is why we want to go over a few things with you today.
What are Performance bonds?
When you get performance bonds they will be issued by a financial institution or an insurance company. They are used in the development of real property on most occasions, but also revolve around construction. They help:
* Guarantee the completion of satisfactory work
* Protects the client
* You adhere to the contract, and if not the client receives compensation
*Are also known as a good faith deposit, otherwise known as a collateral deposit, which are used to secure future contracts
* You guarantee the value of your work, especially if something unexpected occurs
*Usually are part of a performance and payment bond, in which the payment bond guarantees payment of the labor and material costs by the contractor in accordance to the agreement
* Secure your promise to complete the job in a specified time at the cost you presented during the time of bidding
*They are not for the protection of the contractor doing the work
When are Performance bonds used?
In most cases, Performance bonds are used for various contracts involved with construction. Often, they are a requirement for state, federal, and local municipalities. Usually, they are required on all public projects. Especially when:
*A contractor is doing work within the public sector.
* The project is over $100,000 and for the federal government
* The project exceeds state and local laws
Why Are Performance bonds so Important?
It's important to understand that anytime a contractor doesn't have a performance bond there work is limited. It's why these types of bonds are required for major construction. If you don't have on then you will:
* Limit the company's growth
* Only allow you to work on certain types of projects
* Make it hard for the government to actually hire you for public construction jobs
In the end, your construction company will have a better chance of growing if you utilize performance bonds. They ensure that you will complete the work based upon the specifications in the contract. Plus you will finish the project within the time that was specified. Just remember that performance bonds do not act as insurance for you, but simply states that you have the financial capability to cover the work.
