Performance & Payment Surety Bonds are Essential
Private sector firms perform a significant amount of the public construction work in America. In general, this work is awarded to the lowest responsive bidder. Surety bonds are a crucial part of this system. Your clients working in construction that place bids in an attempt to secure these types of jobs must be fully bonded to be eligible to take on these projects.
There are, of course different bonds, each with a distinct purpose and this article will demonstrate the need to have both Performance & Payment Surety Bonds when working in the construction business.
Bid bonds begin the overall process
Anyone that has ever been in the contracting business knows that the bid bond is intended to weed out frivolous bidders from the bidding process. This helps to ensure the client that the successful bidder will enter into the contract faithfully and provide the required Performance & Payment Surety Bonds. If, for whatever reason, the lowest bidder fails to honor these commitments, the owner is protected, up to the amount of the bid bond, usually for the difference between the low bid and the next highest responsive bid.
When a developer wants to protect the investment made in a project, the contractor that won the bid is required to provide a performance bond before work can begin. The performance bond secures the contractor’s promise to perform the contract in accordance with its terms and conditions, at the agreed upon price, and within the time allowed. If the contractor fails to do so, the developer can make a claim to keep from losing money.
The payment bond protects certain laborers, material suppliers and subcontractors against nonpayment. Since mechanic’s liens cannot be placed against public property, the payment bond may be the only protection these claimants have if they are not paid for the goods and services they provide to the project.
The construction project owner should do some proper screening; checking the work history and references prior to hiring any contractor. Some prequalification screening of contractors obviously is necessary. The government has elected to use the surety mechanism, so the surety assumes the prequalification responsibility and protects the government against loss when a bonded contractor defaults. In short, the Performance & Payment Surety Bonds guarantee that your client will complete the project according to contract.