Performance bonds, also known as surety bonds, are the lifeblood of your contracting business. Without them you will be blocked from bidding on many lucrative jobs since most commercial contracts, and all federal projects, require them.
Most Common Bonds Used by Contractors
- Bid Bonds – provide assurance that you will enter into a contract, and post a performance bond, if you are awarded the project.
- Performance Bonds – guarantee that you will complete the contract, per specifications.
- Payment Bonds – certify that you will pay all your subcontractors.
Parties to the Contract
Surety bonds have three parties to the contract:
- Obligee – this is the project owner (the one who benefits from the bond if the contractor fails to perform)
- Principle – the contractor who will complete the work
- Surety – the issuer of the bond
In the event the contractor defaults on his performance, both the contractor and the insurance company are jointly and severably liable. If a solution cannot be found, the obligee has the right to collect the full amount of the bond.
Protect Your Business and Reputation
Being able to obtain surety bonds not only opens the door to all types of jobs, but it also provides assurance to subcontractors that they will be paid if they do work for you. Your reputation is everything in the contracting business, so visit an insurance bond specialist and get your business off on the right footing.