Understand Contractor Bonds Before Buying.

 

Purpose Of Insurance Bonding

Hiring a contractor for construction job can be a tricky decision since a contractor can bring a few uncertainties along with him. Questions regarding the contractor’s experience, capabilities, financial stability to pay his suppliers and workers as well as support the work are worth considering. What if he is unable to complete the contract or demands more than necessary? These are genuine concerns that must not be overlooked if you are considering employing a contractor. Insurance bonding proves highly beneficial against these uncertainties, especially if the projects are of a monumental scale.

Insurance bonding offers a financial guarantee to assure satisfactory completion of the project by the contractor. These bonds protect your funds in case the dealer fails to carry out a specific job thoroughly. In the event he is unable to realize the contract for whatever reason, the bonds agency disburses the amount to cover the extra cost. Additionally, insurance bonds cover any constructional damaged to the estate, unpaid subcontractors and stolen or missing materials. if you live in CA,  always hire a contractor with a valid California contractors bond to avoid disappointments.

Types of Contractors Bond

Contractors bond comes in three categories: bid, performance, and payment. Performance and payment bonds are mainly to ensure a specific deal.

A bid bond is a commitment made by the bidder to adhere to the performance and the payment bonds within a specified duration if he is granted the contract.

The performance bond ensures the contractor’s actual adhering to the agreement. Payment is guaranteed up to the total sum of the bond for things such as the completion cost or the cost for rectifying constructional faults, for which the contractor is liable.

Payment bonds are designed to compensate the cost owed by the dealer to third parties such as suppliers, subcontractors, laborers as well as payment any miscellaneous expenses.

Purpose Of Contractor Bonds

The rate of contractor bonds like other surety bonds varies depending on the amount of the bond, the creditworthiness of the obligee as well the location where the bond is required. You can check out the rates by contacting different surety bond issuers and getting quotes. The contractor bond is mandatory by the government because they want to be assured that the building will be completed as per the terms of the contract and on time. The most significant advantage of getting a bond is the lack of the need for collateral. Contractor bonds with lousy credit are favored by companies or individuals who have no credit history.

The Importance Of Bonded Contractors

A contractors bond is a critical tool for both you and the dealer. This insurance bonding guarantees you financial security in case of serious problems involving the contractor. Construction work can be costly, and without insurance, it can pull you into heavy financial losses. When hiring a contractor, you have no solid proof of his financial condition. In some countries, constructional dealers can receive a license to work only if they have insurance bonding. Most material suppliers and laborers prefer to work with licensed dealers. By providing insured services, contractors with contractors bond have a better chance of gaining the clients’ trust and getting employed.

How to Win Municipal Construction Projects

Municipal and other government construction projects are not only profitable for you but they are integral to your business growth.  Not every construction company can bid on these projects since there are so many requirements you need to meet in order to even qualify to put in a bid.  One of these requirements are contractor bonds.  They are required for all public construction in America and they are to ensure that there are only serious bidders that are vying for a project.  If you want to learn how to win municipal construction projects you first need to understand contractor bonds and how they work.

Protection Under the Law

When contracts are awarded to private firms like yours, the municipal government wants to ensure that the project doesn’t end up a failure and even governments don’t have bottomless pockets.  They want to make sure that you actually have the resources to complete the project and you don’t abandon the project half way through.  The taxpayer don’t want to assume extra costs nor do they want to be stuck with half-finished projects.  They also do not want City Hall filled with subcontractors who weren’t paid for their services, bonds protect everyone from that happening.

It was way back in 1894 that Congress first authorized the use of a security bond to guarantee projects would be completed.  It wasn’t until 1935 that payment bonds along with performance bonds were required in order to be awarded any contract in the public sector.  This was to make sure that everyone including the laborers, project owner and suppliers were protected in case the contractor failed.

Securing a Bond

In order to get contractor bonds for your company there are some things that you need to be aware of, such as the terms of the municipal project and what bonds are required for that project.  Bonds are not free either, but they are an investment in your business and you will see a flat fee of $100 per contract.  You can check on the website for the details of the project and proof of license, insurance and a bond will be required when you submit your application.  If you are unsure of which bonds you need you can check with your insurance agent they are familiar with the process and will be able to help you.

Winning a municipal contract gets you noticed not only by the city and for future upcoming contacts but you also build a reputation with the local business community as someone who gets things done.