3 Things You Need To Know About Construction Bonding
If you are in the process of putting together a large construction project, you need to understand how construction bonding works. Here are three things that will make understanding the construction bond process easier.
#1 There Are Multiple Types of Bonds
The first thing that you need to understand is that there are multiple types of construction bonds that you will need throughout a construction process. There are three main types of construction bonds.
- Payment Bond: A payment bond is an agreement that the contractor will pay off certain works on the project. What workers this includes should be spelled out within the bond, but generally it includes the contractors direct employees as well as any subcontractors that they hire to work on the project.
- Performance Bond: This type of bond is in place to protect the property owner. If for some reason the contractor that the property owner hired does not finish or complete the project, this bond will help cover the services of another contractor to come in and complete the project.
- Bid Bond: A bid bond is between the contractor and the property owner. When a contractor submits a bid bond, it increase the value of their bid and puts a solid financial promise behind their bid. This type of bid is essentially a promise by the contractor to complete the job, on time and in budget, based on their bid proposal.
#2 Insurance Companies Issue Bonds
Generally, insurance companies are the entities that issue construction bonds. Sometimes, they are subsets or specific divisions of insurance companies, so although the name backing a construction bond may not feel that familiar, it is most likely connected to a major insurance company.
It is always a good idea to research the company that is issuing the bond and make sure that they also have a solid financial track record.
#3 Construction Bonds Protect You From Loss
Finally, it is important to understand the overall reasoning behind construction bonds. Construction bonds are designed to help ensure that you do not experience any loss in the first place.
They are a way that a contractor can offer an guarantee on their work, and they are a way that you can recoup money and damages if for some reason a contractor does not come through on their promises and contract on a job for you. Ideally, you should not have to cash in on the bond if the contractor sticks to and completes their job.