In every construction, contractor bonds provide general contractors, developers, and owners with a surety that all the parties involved will honor their promises and the funds will be available for the other entity. Hence, the bond protects against financial loss to the construction company and the developer. Contractorbond.org – Contractors License Bond California is an example of a trusted bonding company who offers their clients competitive pricing. Bonds also protects the assets of the investor against non-completion of the project. There are different types of bonds; performance bonds, bid bonds, and payment bonds.
* Performance bonds – the contractor uses the bond to guarantee that the project will be completed in time and by the terms. In case of defaults, the other party has the right to contact the surety.
* Bids bonds – The bond protects the owner. If the bid is not respected by the contractor, the owner has a right to sue both the contractor and the issuer of the bond.
* Payment bond – The payment bond guarantees that payments due to all subcontractors and suppliers will be horned on time.
How Contractor bond protect construction companies
Due to the assurance provided, below are some ways on how contractor bonds protect construction companies.
Shows financial strength
Contractors are required to show financial strength. This is beneficial to the contractor because he or she can get more significant projects and minimizes the risk of getting involved with an untrustworthy developer. To obtain the bond, bonding agents require a positive net income, shareholder equity growth, and operational cash. They also require a pipeline of your current, past and pending projects.
Guarantee public contracts
Every contractor’s dream is to have a large public project. This guarantees financial freedom and protects construction companies from collapsing. But for a project above specific dollar amount, government institutions need bonding to protect the taxpayer money, and for the contractor to guarantee timely project completion. Keep in mind that a large government project might require a general contractor, several subcontractors, and subcontractors may hire small project companies. All these projects specify the minimum bonding amount and documentation. Rough construction companies may not meet the required standards for consideration. Hence they cannot apply for these big projects.
Attracts Serious employees, suppliers and subcontractors
Numerous construction companies have barriers to entry. Most of these entries are forgotten as soon as they are formed, leaving employees, independent contractors, and suppliers suspicious of the construction companies they have never engaged with before. If a construction company fails to honor its payment promises, the laborers, and the subcontractors have a remedy of payment protection. So, by having Contractor bond, the construction company is protected from unserious employees, and only attracts people and businesses that are needed for project completion.
Protects against contract disputes
In most cases, a developer might dispute the delay cause, the percentage of completion or any other form of dispute. Due to the dispute, the developer might withhold some payments. Without any bonding, the only option of the construction company is to head to court. But with a contractor bond, as a construction company, you are protected. The bond helps to resolve any form of conflict before escalating. It also prevents expensive delays that might be unnecessary.