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As a contractor of construction projects, landing more projects and increasing your revenues would be your top concerns. You must be ahead of other contractors if you want to gain the attention of project owners. Buying or obtaining a performance bond construction is one of the effective ways to do that. Being bonded tells the owners about your reliability, efficiency, and willingness to complete a specific project on time. It also provides owners with the assurance of being adequately compensated if they fail to deliver on the project. How does this document work, what are the ways of buying it, and how can a surety broker company help you? Read on to find out.
What is a performance bond?
A bond involves three parties: the principal (contractor), surety (the company issuing the bond), and the obligee (the project owner). It guarantees the obligee of the principal to complete a project on time as per the contract’s terms and conditions. If the principal fails to honor the contractual obligations, the obligee has the right to file claims and seek financial compensation.
Is this bond the same as insurance?
Some people believe a bond and insurance to be the same thing, especially if it’s their first time buying it. Unlike insurance, a bond provides coverage to the project owner or obligee instead of providing you compensation. Even though your surety company will provide financial assistance when the obligee files a claim, you must return the money at a specific time.
How much does it cost?
A surety company considers various factors before arriving at a final cost of the bond. For instance, they might assess your capacity to complete a project, professional expertise, previous experience of the project at hand, and credit history. If the company finds you satisfactory on all these counts, it will provide you with the bond at a lower rate. However, the specific cost depends on the coverage the owner demands, which is usually 50% or 100% of the total contract’s value.
Is it better to buy one-time bonds?
If you are not regularly involved in large-scale construction projects, buying a one-time bond would be your best option. The application process and the information required for these limited bonds are much quicker and easily available online on the surety company’s website.
What happens if you default?
As mentioned earlier, the obligee or project owner would file claims if they have reasons to believe you have defaulted on the bond. In that case, the bond company would provide you with financial, managerial, or technical assistance to enable the project’s completion. They might even replace you with another contractor while giving monetary compensation to the owner.
Why should you hire a surety broker?
Hiring a surety broker is one of the best ways of buying a performance bond. They are experienced professionals who would help you find a suitable bond company after considering your requirements. They will handle all the negotiations, provide you with the necessary information, file an application for the bonds, and ensure they update your file. They will also help you switch from one company to another if required.
How to select a surety brokerage company?
You could check how many years they have worked as brokers in this business. It is advisable to hire an experienced brokerage company because they possess adequate knowledge and contacts with the best surety companies. You could also read their testimonials to know what other contractors think of them.
These are some details related to a performance bond for construction that you must know. It is essential to select a reliable surety broker solutions company that knows the ins and outs of these bonds and can provide you with every help possible while buying them.
