10 THINGS TO KNOW ABOUT BONDING

1] The bonds that are used in the industries of construction are known as surety bonds. A surety bond is a financial instrument under which one party promises the other party, that a third party performs his obligation. A surety bond is a different type of contract compared to others. Usually, in a contract, two parties are involved, while in a surety bond contract, three parties are involved.

2] Surety bonds have various types of bonds, but the most common include payment, performance, and bid bonds. Payment bonds ensure that the money to all laborers, suppliers, and materials has been paid. Performance bonds provide security that the project shall be performed within the given period. Bid bonds protect the owner by providing a guarantee that the principal shall enter the agreement on a determined price. Get started with understanding which type of surety bond is right for your needs.

3] The industries of construction are very risky. Many of the contractors had gone bankrupt during the years 1990-1997. Due to the pending construction, the liability of the project exceeded $21 billion.

4] According to the Miller Act, the federal law has made surety bonds mandatory for all public works contracts exceeding $100,000.

5] The characteristics of surety bonds may be similar to bank credit, but they are different. In the bank credit, the money is given in the beginning itself. Surety bonds just provide financial security to the project owner.

6] Surety bonds facilitate excessive pre-qualification analysis of contractors. This process shall ensure that the project owner is selecting a verified and responsible contractor for the project. Before the issuance of surety bonds, the owner can check the credit history, financial stability, character, project equipment, and banking relations with the contractors.

7] Contract surety bonds include providing a guarantee to the project owner that the project shall be finished within the prescribed time and ensure that all the payments related to the project have been paid. It relieves the owner by reducing the monetary risk that might occur due to the failure of the contractor.

8] Surety bonds are considered a great monetary risk management tool. The issuance of a surety bond shall transfer the risk from the project owner to the surety. In the event of default on the side of the contractor, the surety company shall interfere and compensate the full amount to the project owner.

9] The cost of obtaining a surety bond may vary from place to place. Usually, the cost ranges from 1% to 3%.

10] The project bonding is the responsibility of the contractor. The owner just undertakes specification and bonding requirements.

CONCLUSION:

Every project owner wants to be fulfilled that the contractor has completed the work in all aspects. Surety bonds assist the owner by giving them assurance regarding the completion of the project accurately and within the given period.