Construction bonds are a type of surety bonds used by businesses to redistribute the risks associated with construction projects. The risks are basically adverse situations wherein the contractor or builder fails to complete the construction project on time or doesn’t adhere to the specifications of the contract. Construction bonds are alternately called contract bonds.
There are three parties involved in construction contract bonds namely, the contractor or the builder, the investors of the project and the financial company initiating the bond. Every contractor should be well aware of the nuances and the clauses of construction contract bonds. This is why we have come up with a guide for contractors to understand construction bonds better.
How does it work?
When you as a builder, take up a construction project, you try your best to complete the construction work and give your client (in this case a business owner) a satisfactory outcome. But, as the popular saying goes, “Man proposes, God, disposes,” there are times when the project remains unfinished. It is for this reason that private companies and public sector institutions opt for construction bonds. It is a mandate for significant construction projects such as development government properties or initiation of a major business construction. These bonds ensure full accountability of the contractor involved. In the event, the contractor is unable to fulfill his commitment towards your project and the agency, the issuing the bond will become liable to the client.
Types of Construction Contract Bonds
Some business owners demand a bid bond alongside the project contract. A bid bond ensures that the contractor will enter the contract if he gets the job and will furnish all the necessary performance and payment bonds to the project owner as per the contract. In cases, when the contractor fails to abide by the agreement, then the business owner can sue the builder and the insurance company under which the bid bond was made will be held liable. This bond is however, only valid when a contractor bids for a particular project and earns it.
This bond secures a project owner if a contractor does not adhere to the terms mentioned in the contract. It pertains to contractor finishing the project on time and within the stipulated budget.
2.Labor and Material Bonds
Labor and material bonds are used to protect business owners from the complete payment of equipment, labor and raw materials in cases when the contractor fails to pay for them under the terms of the agreement.
This bond is secured by the project owner for a set duration. It covers any possible defects or repairs in the project that might come up after the completion of work.
If you or your client are on the lookout for a suitable agency to get your construction contract bond, then get in touch with our experts at My Brokers today.