A contractor bond is an essential coverage for businesses. Aside from being a requirement in many states in the US these coverage provide a reliable safety net for firms, especially those that offer general contractor services. Both large and small contractors need to be bonded to protect and uphold your business’ sustainability.
The Usefulness of bonds
A Contractor’s Bond is not a requirement in every state for every contractor’s dealings, but this coverage provides added financial backing for any unplanned circumstances that can occur during or after a project. Much like insurance, a bond also boosts a general contractor’s chance of obtaining the major and even the minor projects. But for the case of many developed states though, being bonded is an absolute requirement before being allowed to bid on projects or independently offer services to clients. Here is a closer look at construction bonds.
Forms of Bonds
Contract bonds, known as “Surety Bonds,” come in different forms and each provides for particular circumstances.
1. Bid bond. This, in particular, ensures that upon acceptance of a specific bid by a customer, the Contractor will eventually proceed with that contract and will immediately replace the bid bond with a performance bond. Otherwise, the Bonding Company pays a customer the deviation on contractor’s bid and a next highest bidder.
2. Performance bond. This serves as a commitment by bonding company to settle payments when the order is complete.
3. Payment bond. This bond ensures that the Contractor will pay materials from suppliers and services provided by Subcontractors.
4. Maintenance bond. This bond functions much like warranty wherein the Contractor pledges to deliver therapeutic and upkeep services for a specified period.
Facts to keep In Mind
While this information is reassuring, there is still some additional information about bonds. All bonds include bond premiums as part of market competition and risk. Depending on the type of bond you seek, the percentages can range anywhere from 1% to 20%, and they could include a minimum charge or even be set to a graduated rate. Don’t forget that bonding rates can also vary according to the applicant’s credit.
The time required to get a bond can range, depending again on the type of bond, from anywhere to same day, to a few days, to a week or more. Bond duration also varies according to type and can be from 1-3 years, the duration of a project, or a court-appointed time span. So whatever type of bond you choose, make sure to do your research, so you get the right bond for the right service for the right amount of time, and with the right amount of coverage. With a bond like this, you have the research and guarantee of the surety to minimize your risk.