In the construction business with the current economic climate, project managers and government departments are more likely to be more concerned about safeguarding projects against unexpected and rising costs and performance failures than ever before. Consequently the need and demand for surety bonds continues to be high.
It is important for contractors to know that surety bonds are not insurance but an extension of credit in lieu of putting up cash for the terms required by the owner or named third party. The surety company which issues the bond is there to ensure collection if the contractor breaches the terms of the bond. Any financial penalty for failure to meet the bond’s terms will be borne by the contractor not by the surety company which will collect that penalty on behalf of the named obligee.
There are basically three types of surety bonds in construction.
- Bid Bond - These surety bonds relate to the bidding process and guarantee that if the contractor is awarded the contract based on his bid, he will perform the job for the approved price. Generally, if the bid winner refuses to take on the job, a surety bond in such case will force the defaulting contractor to reimburse the bid issuer with the difference between the next lowest bid and his, along with any penalty as stated in the bond.
- Performance Bond – This type of surety bond is there to ensure that the contractor performs the work as agreed to in the construction contract. This protects the obligee or owner from financial losses should the contractor not live up to his agreements as stated in the bond. Again the amount will depend on the wording of the bond.
- Payment Bond – A payment bond is there to protect the owner or obligee from liens placed on the project from unpaid suppliers and sub-contractors should the contractor not pay them. Again, the contractor will be penalized as per the terms of the bond.
Statewide Insurance is there to handle your surety bond needs in Texas, California, Oregon, Minnesota, Virginia and Nevada. Give us a call today to find out what we can do for you.
When it comes to starting your own business as a contractor in the state of Virginia, you are going to need to make sure that you are licensed and that you understand all of the rules as they apply to your business. For most people who are just getting started, this is really a matter of doing the proper research. You need to be sure that you know exactly what kind of work you are doing and what you need to do to make sure that you have all of the proper paperwork and legal materials. Many of these materials have to do with protection for you, your clients, and your suppliers, such as the Virginia contractors bond.