Surety bonds are considered as integral tools in the corporate world, especially in the construction industry. Below are some of the most commonly used contractor surety bonds created between contractors and project owners.
The importance of surety bonds in today’s corporate world cannot be stressed enough. In order to ensure that a particular project is carried out based on the requirements of the project owner, merely having a contract signed between two parties is sometimes not enough. The inclusion of a surety bond in the contract greatly helps companies from minimizing any possible financial risk and loss that may be result by the contractor’s inability to meet the requirements and conditions of the signed contract.
Contractor bonds are a type of surety bond that is frequently used within the construction industry. These types of surety bonds are called as such since the coverage and protection provided by the surety bond are based on the terms and conditions that have been stipulated on the contract that was originally signed by the parties involved. There are a number of different types of contractor surety bonds that are used. Here are some of the most common types of contractor surety bonds.
One of the most common types of contractor surety bonds used is the bid bond also known as the performance bond. As the term implies, the bid bond is often included in contracts after a project has been awarded to the lowest bidder. In the event that for some reason that the awarded contractor is unable to begin or complete the project, the project owner is given the right to terminate the contract and award this to the second lowest bidder, with the project owner paying the difference between the two bids.
Another type of contractor surety bond is the payment bond. This type of bond is often partnered with performance bonds which guarantees that the terms and conditions stipulated in the contract signed would be met and completed by the contractor within the specified time frame. Payment bonds guarantee the project owner that should the contractor require the services of subcontractors and additional laborers to complete the project, the expenses incurred will be completely shouldered by the contractor.
Supply bonds are contractor surety bonds that are often created alongside performance and payment bonds. Supply bonds, just like payment bonds, guarantees the project owner that the cost to purchase the needed supplies for the completion of the project will be fully shouldered by the contractor. Apart from this, the supply bond also guarantees project owners that these supplies meet the quality requirements stipulated in building codes and other local government construction statutes.
These bonds are applicable when the construction project entails the development or improvement of a particular subdivision. This type of bond guarantees the project owner and the local government bodies that the infrastructures that will be built meet all the requirements stated in building codes as well as other government regulations.