Surety bonds for performance and payment are crucial in the construction industry because, without them, contractors would likely be unable to secure projects. As many experienced contractors understand, the ability to bid on a public construction project is often decided upon based on the benefits it offers. They also realize that, for larger projects, whether on the municipal, state, or federal government level, the greater the odds are that there will be imposed a substantial performance and payment bond requirement.
Securing bonds gives contractors and construction managers a leg up on the competition. Bonds are in place to guarantee work, as well as any payments due to individual parties who perform services in the execution of these projects. Performance bonds are guarantees by a bonding company that jobs will be completed per the specifications of the contract.
How crucial are bonds for performance and payment?
A payment bond ensures that subcontractors and material suppliers are paid according to contract and these bonds are typically used in conjunction with performance bonds, usually on the same bond form. Even though they are frequently underwritten together, they represent two separate bonds. Like all surety bonds, they are issued by a company that backs the agreement between the contractor and the owner of the project relating to a particular job being done on the property owner’s site.
Contractors need to purchase these bonds whenever they are negotiating a construction contract, understanding that this is different from insurance, as the bonding company will not merely write a check if the intended party is unable to complete the required work. If a contractor or subcontractor is unable to complete a job then the bonding company may put the job out to bid with another selected contractor.
The cost of surety bonds in new jersey can often depend on a number of factors, including the size of the job at hand and its contractual terms, the amount of bonding coverage required, the principal contractor’s work record, the principal contractor’s credit score, and even the principal contractor’s other financial credentials. By providing your clients with surety bonds for performance and payment they will feel satisfied that their project is in good hands.