A surety bond acts as a contract between respective parties over the accordance, services, and terms for which a project should be completed as established by the bond. These bonds ensure that specific construction tasks are fulfilled as needed, and will establish liabilities for any losses, breaches, or costs. In the construction industry, surety bonds are required in order to construct and work on differing private projects, public works projects, novel construction projects, and even remodeling. There are a variety of different types of surety bonds in construction, ranging from contractor license bonds and payment bonds to performance bonds. Let’s dive into the four major types of surety bonds used in construction.
Contractor License Bonds
Contractor license bonds are bonds that establish rules and procedures for which a contractor must conduct business. Contractor license bonds will establish that a business must be administered in accordance with all state laws and regulations, and that business must be conducted in a good and law-abiding manner, including ethical standards. Contract licenses can vary by state and local law, and operations or requirements for functionality can be determined through differing constituency divisions including cities, municipalities, and more.
Performance bonds, also known as contract bonds, warrant that a contractor or company will proceed with the assigned construction project upon completion, and will follow all appropriate state laws, regulations, and industry agreements, operations, and requirements. Consequences for breaching performance bonds could include liability costs, specifically financial loss. Financial losses could be significant, especially if the construction project has to be moved and completed through a different contracting company.
Payment bonds ensure that under contract, the contractor or company will fairly compensate its employees, workers, suppliers, and subcontractors conforming to the terms and conditions of the binded contract. Non-compliance with compensation agreements and terms could result in claims and liability losses over fair compensation and wages, and result in financial loss over what is allegedly owed to an individual within the company.
Bid bonds are contracts that ensure that a contractor or contracting company will accept employment upon receiving an offer to complete a construction project. For any project that costs $1000,000 or more, bid bonds are a federal requirement. Many states have complementary laws for bid bonds around public construction projects, but vary on a state-by-state basis. Consequences for breaching a bid bond contract include facing a claim to counterbalance the legal, financial and evaluative costs associated with finding a new contractor.
So, How Can You Get Started With Bonds?
At Biscayne Risk and Insurance, our goal is to ensure you are informed about all information regarding surety bonds, including how they work and the purchasing process. Our surety bond experts are here to provide you with the guidance you need to face any difficulties you encounter in the surety bond process, and be a high-quality provider of construction bonds for all of your business needs. We are committed to being of value to you and your business, and to help you grow your company every day.. For more information on how we can assist you in the surety bond process, contact us through our website today!