Within the construction industry bonds are frequently used to help reinforce industry regulations and contractor/client relationships.  Many of us outside the construction and bonding issue are at a loss when trying to understand the purpose of construction bonds as well as how they work to benefit each individual in the process.  Don’t worry though because this article will shed some light on the different bonds needed when working within the construction industry.

Below, we will offer a detailed look into the four most common surety bonds that construction professionals should familiarize themselves with.  The most frequently requested contract bonds that help to regulate the construction industry are as follows:

Contractor license bonds are purchase by a contractor in order for them to become licensed within the state to work within the construction industry as a legitimate business entity.  Different states, counties, cities and subdivisions often require their own license bond.  Without the necessary paperwork filed contractors will not be able to obtain the proper licenses.  If a contractor does not have the proper licenses they will be faced with penalties, fines, legal action and license revocation.

A bid bond is not always necessary but frequently requested when a contractor is submitting a financial proposal on a project to the owner.  The project owner may require a contractor to obtain a bid bond before accepting the contract that is being proposed.  A bid bond offers a guarantee that the contractor enters into the contract in good faith.  This means that the services and materials can all be provided per the terms of the contract.

Payment bonds are required for all jobs over $100,000 under the federal Miller Act.  A payment bond helps to ensure that all subcontractors and suppliers of materials get paid for their contributions to the project.  This type of bond protects a project owner from assuming these expenses if the contractor fails to pay them.  Payment bonds ensure that unpaid parties are paid through the liability of the payment bond.  The contractor is ultimately responsible to reimburse the surety company if payment to subcontractors or material suppliers if the payment bond is required.

Performance bonds are often paired with payment bonds as they both offer protection to the owner of the project against any loss because of shortcomings of the contractor.  A performance bond ensures that the project is completed as stated it should be in contract.  It also states that the project will be performed on time as stated.  If the projected is not performed, the owner can make a claim against the bond if unsatisfactory work is performed or the work is not done on time.  If the claim is valid the bond is paid by the bond company the contractor has to pay bond.

A bond company tries to only issue surety bonds to those contractors believed to be worthy of upholding their contractual obligations.   The process of qualifying for surety bonds can be a difficult process for construction professional.  Understanding how surety bonds work and working with a company that specializes in issuing bonds can help for a smoother process overall.

Construction Bonding Specialists, LLC are dedicated Surety Bond Professionals that are aligned with several Treasury Listed and AMBest Rated Surety markets which allows them to assist with virtually all Bid, Performance and Payment, Financial Guarantee and Supply bond needs.  Find out more information at http://www.bondingspecialist.com.