Business and Personal Insurance Experts
Call 877-357-3963
Surety bonds are a very important instrument to protect parties from breach of contract or breach of obligation by another. Generally, there are three parties bonded together in an agreement - the principal, the obligee and the surety. In most cases, bonds are required by law or by contract to guarantee the performance of an obligation by the principal. Thus the surety bond will protect the obligee from damages in case the principal is unable to fulfill their obligation.
There is actually no significant difference between a construction bond and a contract bond. A contract bond is a type of surety bond that guarantees the fulfillment of a contract. Contract bonds can be used in many different industries for many different reasons, but are most widely used in the construction industry. The construction industry uses contract bonds to secure guarantees that projects will be completed on time and on budget according to the terms of the project’s contract. If a project is not completed according to the contract, and a claim is made on the bond, then the surety company will step in to mitigate any potential losses to the project owner/Obligee.
Construction bonds are the types of surety bonds that are commonly used in the construction industry. These bond securities are used to guarantee the performance of contracts and the payment of materials and suppliers. A few examples of construction bonds include performance bonds, payment bonds, and bid bonds.
Project developers request bid bonds in order to ensure contractors are submitting serious bid proposals and they have the financial credentials to acquire it. If the contractor declines the appointment after the developer has already chosen them, the contractor may be required to pay the difference between his offer and the next highest bid.
In order to guarantee that contractors will complete their projects in accordance with their contract, project developers can make a claim on a performance bond. This claim will give them access to funds that allow them to hire a second contractor to complete the job. The Federal Miller Act requires that performance bonds are to be used on all projects that are federally funded worth at least $150,000.
If a lead contractor goes bankrupt before a project is completed, payment bonds guarantee workers, suppliers and subcontractors will get compensated for their services. The Federal Miller Act requires payment bonds for all projects worth at least $150,000 that are federally funded and are often affiliated with performance bonds.
These bonds require suppliers to provide the materials and equipment outlined in the purchase order. If they do not, the supply bond can be used to reimburse the buyer for the resulting loss.
Maintenance bonds guarantee the quality of work completed on a project. If the materials or workmanship were poor, the bond will reimburse the amount for the required repairs.
Subdivision bonds ensure contractors will build and renovate the public structures within subdivisions in accordance with local specifications. Claims can be made on these bonds to complete the subdivision project if the contractor fails to do so.
Site Improvement bonds are associated with projects that update structures that already exist. They make sure that the improvements agreed upon in the contract are completed to project specifications; claims will make certain the finances are available to complete renovation.
Contractors are required to purchase these bonds before they receive their contractors licenses at the state, county and/or city level. They guarantee that contractors follow the licensing laws and regulations that apply to contractors. The contractor license bond is a license and permit bond but because they are used by construction professionals, they are often considered a contract bond.
Contact TriState Business Insurance for a free consultation and insurance quote. Let us handle protecting your business with an appropriate insurance package so you can spend your time running your business!
Call Us: (877) 357-3963
Email: info@tristatebi.com
*are required fields.
