Knowing About Construction Surety Bonds

A surety bond is a contract that usually involves three parties, that is the surety, the principle, and the owner. The principle is a contractor who promises to act and adhere to the obligations of the contract. A construction surety bond can be used on privately funded projects or in public projects. In private plans, the contractor is given support to the completion of the project, and there is the transition of funding from construction to permanent financing. In public projects it involves the supporting of prequalification of the contractors, protecting payment to subcontractors and the protection of a contract to completion for the public.

Construction surety bonds such as from  Poms & Associates which are also known as contract surety bonds can be of three types. They are bid, performance and payment bonds. Bid bond gives financial protection to the owner when a bidder is offered a contract pursuant for bidding documents, but there is a failure to sign the contract and provide essential performance and compensation bonds. A performance bond is a precautionary measure which shields the owner against financial losses in case the contractor fails to honor the contract in line with the terms and conditions. In such a case, the owner might terminate the agreement out of the principle defaulting thus calling for the surety to encounter the obligations of a surety bond. The payment bond is an assurance that the contractor will pay the subcontractors, particular workers, and material suppliers.

The bonds can be required by the public or even the private sector. The statutory requirement might be the federal government, state or local governments. It may be used by the federal government to protect the taxpayer money. In the local governments, it is for protecting the compensation of suppliers and subcontractors. A surety can replace a contractor where the former abandon the job. It can as well assist the contractor in case there are cash flow problems. It is thus apparent that surety ensures the completion of projects in line with the terms and conditions of the contract.

A surety takes the rights to contract balances and indemnification from contractor to settle a claim and all the costs associated with it. Private owners can voluntarily buy the bonds, but it is a requirement by the law for public works. Like insurance policies, surety bonds are regulated by the state insurance dept. With such advantages, it is therefore clear that surety bonds are beneficial to both the private and public sector.

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