The construction industry is a competitive one, and in order to be successful, constructions firms need to be very careful about who they contract with. One of the biggest threats to a construction project is the possibility of contractor failure. Whether it be economic downturn, labor shortages, material sourcing issues, equipment problems or even just blatant dishonesty, there are so many factors that can cause a contractor’s business to fail and leave a construction project at a standstill.
No construction firm, regardless of size, can afford to lose money on a project due to contractor irresponsibility. Furthermore, when a contractor fails or stalls a project, ultimately the reputation of the construction firm is at stake. Surety bonds can help constructions businesses safeguard their projects and stay competitive.
What is a Surety Bond?
A surety bond is a three-party agreement in which the surety company assures the obligee that the principal will fulfill their contract. In short, a surety bond is like an insurance policy for the party that secures the bond – known as the obligee. Surety bonds make certain that contractors and vendors will perform the agreed-upon work and abide by the terms of the project. Obtaining one before beginning a construction project reduces the risks that a construction business and their clients are exposed to when collaborating with other vendors or contractors.
Different Types of Surety Bonds for Construction Businesses
There are several different types of surety bonds that a construction firm can obtain to help lessen their risk of contractor failure, including:
- Bid Bond: This type of surety bond guarantees the construction firm will honor their bid and will sign all contract documents if awarded the contract. It helps guarantee that a firm is financially stable and has the necessary resources to take on a project and can make the firm stand out from other bidders in a positive way.
- Payment Bond: This type of surety bond guarantees that vendors and labor contractors will get paid even if the insured party fails on the contract. Payment bonds can make a project more attractive to vendors and labor contractors since they are protected from doing work without pay, allowing the construction business to secure quality contractors because the contractors can be certain they will get paid for the work they do regardless of what happens with the project.
- Performance Bond: This type of surety bond guarantees that the construction firm will perform the agreed upon work in accordance with the terms of the contract. It gives the client peace of mind that the construction firm is trustworthy and will ensure the project is completed regardless of setbacks.
For a construction business of any size, surety bonds take the guesswork out of obtaining a contract with a contractor and give peace of mind to both the construction firm and their clients because they know have the financial protection to ensure the project can be completed as promised.
About The Rubin Group
Based in New York, The Rubin Group provides insurance in most of the 50 states. Our full-service insurance brokerage provides insurance and risk management services to individuals in all income brackets and businesses of all sizes and types. We understand that every client has unique coverage requirements, and we are passionate about providing the ideal individualized coverage for each customer. Each member of our team takes the time to truly understand your situation, the particular risks you anticipate – and the very real risks you’ve not yet contemplated. For all of your insurance needs, contact us at The Rubin Group!