By: Jeff Netsite
Submitted: 2010-08-04 09:44:38 | Word Count: 530
Why do I need contract surety bonds? Is a question we frequently ask ourselves while entering into a contract in the field of construction. These bonds provide a source of security in the construction business as they assure the owner of a project that it is safe to invest with a particular contractor. This serves to convince the project owner, that the contractor will pay the laborer and the material suppliers sufficiently. In the aspect of contract surety bonds there are five subgroups, which are bid bonds, performance bonds, payment bonds, maintenance bonds and the subdivision bonds. Let us discuss each types to know their features:
Bid Bonds: The bid bonds ensure the financial safety of the project owner in the sense that the contractor has submitted the bid with honest intentions and that he/she will maintain the bid prices and give the payment and the
performance bonds as well.
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Performance Bonds: These bonds primarily protect the owner from financial loss during instances when the ontractor fails to live up to the contract in regard to the terms and conditions.
Payment Bonds: These bonds ensure that the contractor is going to pay the other subcontractors and laborers including the suppliers of the materials as they all are involved in the same project.
Maintenance Bonds: These bonds safeguard the project owner against the aspects like defective construction and poor quality materials for a specific time period.
Subdivision Bonds: This guarantees that the contractor will indeed provide finances for the specific improvements such as streets, gutters, sidewalks and drainage system. This kind of bond is mainly meant to ensure to the
specific state or the city about the intentions of the contractor.
The contract surety bonds are obtained primarily from the bond producers who are also known as the brokers or agents. These agents or brokers have proper knowledge about the construction industry. It is very tough for a project owner to make sure if a contractor is honest or not. One cannot be sure of the conditions that will prevail if the contractor fails to live up to the contract. A project owner can ensure his safety with the contract surety
bonds.
Moreover, in a performance bond a third party promises to either pay or perform in case, the contractor completely fails to perform and finish a contract. A surety is technically a company that is licensed by the different insurance departments to enable them to write bonds. On the whole a surety has to promise that in case of any kind of failure by the contractor the damages will be paid by the contractor only. A surety bond provides you with that extra backing to look forward to if your contractor fail to fulfill the obligations that are involved in the project. In a
surety contract bond the obliges, is supposed to pay a sufficient amount of premium for the performance bonds and the payment bonds. So it is the contractor's responsibility to include the bond's cost in the bids that they
submit.
