In the industry of construction surety bonds play a crucial role in making sure that the contractors fulfill their responsibility. Awareness of Surety bonds is necessary as it would assist in reducing the significant risk relating to your construction plans.
WHAT ARE SURETY BONDS?
Surety bonds are a three-party relationship, including the owner of the project, the contractor of the project, and the surety company. These surety bonds serve to create a financial guarantee about the fulfillment of the contractor’s obligations, which includes completion of the project within the stipulated period, sticking to the specifications required for the project, and completing payment to suppliers and contractors on a timely basis. If the contractor fails to fulfill his obligation, then the surety company shall reimburse the project owner on the default of the contractor. Surety bonds act as a security in the construction industry. Visit website to learn more about how surety bonds work in construction.
TYPES OF SURETY BONDS USED IN CONSTRUCTION PROJECTS
There are some regular surety bonds used in the construction industries, these are as follows;
1] BID BONDS: These bonds are entered by the contractor regarding their commitment to the project assigned by them.
2]PAYMENT BONDS: These bonds ensure that the contractor shall make timely payments to the labor and suppliers of materials.
3] MAINTENACE BONDS: These bonds give a warranty, that any defect identified during the maintenance period shall be rectified by the contractor.
4] PERFORMANCE BONDS: These bonds give surety about the compensation payable by the contractor on account of any default incurred by them.
5] ENVIRONMENTAL BONDS: These bonds are taken to ensure that the construction of the projects does not affect the environment.
BENEFITS OF SURETY BONDS FOR OWNERS
There are several benefits of surety bonds, which include the financial security granted in case of any default. The surety bonds also assure the qualification and capability of contractors. It enables the project owners to choose their contractors from reputable backgrounds. It assists the project owner in gaining confidence and making the contractor accountable for his work. Bottom line surety bonds promote a systematic process for completion of a project with almost no risk.
HOW TO OBTAIN SURETY BONDS?
There are certain procedures to obtain surety bonds. These procedures shall include:
1] Finding out the type of surety bonds required, which can serve the purpose of the project owner.
2] Analyse the surety bond providers, which has achieved specialization in issuing such bonds.
3] Collect all the necessary information for documentation purposes.
4] Fill out the surety bond form and submit it to the surety company.
5] After applying, the surety company shall undergo an underwriting process.
6] If the application is selected by the company, then you are required to pay a premium, generally a certain percentage of the bond amount.
7] After the payment, the surety company shall deliver the bond to you.
CONCLUSION
Surety bonds are significant in project construction, every project owner shall undertake a surety bond.
