A contractor bond is used when submitting bid proposals to guarantee that the bid is serious and the company is solvent enough to carry out the work outlined in the contract. When it comes to a construction company bidding on big projects or doing work for the government bonds are an absolute must. This is a way to keep bidders who aren’t serious or don’t have the resources to carry out a project of that magnitude from putting in bids.
Submitting a Bid on a Contract
When you submit a bid on a construction project it is usually accompanied but a performance or some other type of construction bond such as a payment bond. The performance bond will guarantee that the contractor will honor the terms as outlined in the construction contract. That means they will also have the project completed on time and on budget. Payment bonds are routine as well and they ensure that suppliers and subcontractors get paid for their work on the construction project. Here is what you are going to need to submit a bid.
How Contactor Bonds Protect
Failure to meet obligations outlined in a construction contract that was awarded to a private company used to happen all too often in the construction industry. Most contractors bit off more than they could chew and didn’t have the money or manpower to complete a project. The project would be left abandoned and the home or building owner was left out of pocket and half-done construction. If it was a government contract then the taxpayers would be on the hook for the cost of completion.
Way back in 1894 Congress decided enough was enough and they authorized the use of security bonds to protect the industry. Later on in 1935 they became a requirement to ensure that projects were finished and everyone associated with the construction got paid. That served to protect the workers, suppliers and building owners against failure of the contractor.
Getting Your Own Construction Bond
Always be aware of what type of bond is necessary for the project. You will have to pay the insurance company a fee for the bond, it could be a flat fee or based on the value of the project. The insurance company that will ultimately issue the bond is going to look at things like, how long you have been in business, your credit history and a few other factors before they issue the bonds. If you want your construction company to grow and take on bigger projects then you need to have the right bonds in place.