Benefits Of Performance Bonds
Performance bonds would guarantee the satisfactory completion of a construction project or something similar. The client should have a collateral property or any other kind of investment to back up the surety bond. A bank or insurance company will usually issue such a bond. These agencies act as the “surety” under such circumstances. Performance bonds are mostly required by the government for projects that involve taxpayer investments. This read offers information on some of the most important benefits of performance or surety bonds.
Most of the time, contractors who are involved in construction projects such as building roads and bridges on behalf of the government have to furnish a surety bond in order to obtain the contract. If the contractor is unable to complete the project within the specified timeframe in the contract, the bonding company will pay the government for the completion of the project or hire a suitable contractor to finish the work. This is why a surety bond is important to protect the project owner against any losses if the contractor fails to perform as per the contract. On the other hand, if the contractor goes bankrupt before the completion of the project, the surety company will pay the owner for any losses. The compensation will depend on the amount covered under the surety bond. The payment is available only to the owner of the project, and no one else can make a claim for it.
The contract should specifically describe the work involved in the project in order for the bond to be effective. The contractor will not be held responsible for vague descriptions in the contract. This is why it is important that the project owner scrutinizes the contract and see that every detail is included in it before he/she signs it. The cost of surety bonds may differ according to each project and the sum assured. If the contract value is over $1 million, the premium might be between 1.5% to 2% the most. The creditworthiness of the contractor will also be taken into consideration under such circumstances.
A sure bond comes with numerous advantages such as – the owner of the project is assured of the completion of the project and he/she will not have to incur additional costs. There are also disadvantages of a surety bond such as the surety will try to prove that the owner has to settle for the least expensive solution to fix the issue or if the owner underestimates the cost of completion of the project, he/she will not be able to recover the shortfall in the future.
Bonds Express is one of the most reputed and experienced surety bond company in the United States. The company began 40 years ago in Syracuse, New York. Ralf Rigo is the founder of the company. They are a fast and easy to use surety bond company highly rated by a majority of their clients. This read offers information on the top benefits of surety bonds.