Construction bonds are a key component of any construction project. Their purpose is to provide a financial guarantee that the bills on a construction project get paid. They also protect the interest of the investor or project owner against incomplete or subpar work. Below are three types of construction bonds that you should know about before undertaking a construction project.
Bid bonds protect the project owner in case the contractor does not honor the project’s bid. When this occurs, the owner has the right to sue the contractor or the issuer of the bond. If they still refuse to honor the bid, they can be held liable for the expenses associated with procuring a second contractor.
Payment bonds ensure that subcontractors and suppliers get paid by the contractor for their portion of the work. As an owner, this protects you as it offers an alternative to mechanic’s liens in case of non-payment.
Performance bonds ensure that the contractor will complete the job up to the terms that are outlined in them. According to the experts at Daniels Insurance Inc, they ensure that the quality and timeliness of the project are upheld. If the project runs longer or is not up to the agreed-upon quality, the project owner can make a claim on the bond.
Each bond type has its own set of rules and eligibility requirements. The surety will analyze your skills, performance history and financial standing to determine your worthiness.