Surety Bonds And The Construction Industry.

2008-09-24 Word Count: 304 Category: Finance

Surety bonds and the construction industry go together very well. These bonds are utilized by contractors to minimize the risk involved with the success or failure of a particular construction project. Surety bonds are one of the best tools available to contractors to give their constituents some peace of mind. There are three major types that contractors purchase. First, contractors can obtain a bid bond to ensure that if they are chosen for a project, they will be bound to a contract and will provide required performance and payment bonds.

Secondly, performance bonds make sure that the contract will be finished to specifications required and that if, for any reason, it should fall short of this, then extra monies will be provided to complete the project. This amount is typically up to the amount of the bond. Lastly, a payment bond assures that the contractor will pay fair wages to subcontractors, suppliers, and laborers working on the construction project. Many states and municipalities now require these bonds before they approve large contracts to construction companies and with good reason. In other words, it’s insurance for the owner so that they can protect their assets that they have invested in the project. Contractors can also enlist the help of sureties to insure themselves against potential pitfalls. The needs of these construction firms could be a small loan all the way up to something as drastic as a surety taking over the contractor and helping complete the project. Avoiding a default is a great service that a surety can provide to a contractor. In conclusion, the services, benefits, and relatively low costs of surety bonds should convince the owner of a construction project to include these as insurance against the risk of construction. It’s a small price to pay for their financial protection.

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