Do You Know About The Construction Bonds |
Posted: May 20, 2016 |
Bonds play a crucial role in the construction industry. They are regarded as a means of protection if the contractor is not to perform or meet the contract specifications. A construction bond is a type of surety bond which is a must for financial investors for carrying out large and federal construction projects. This bond is largely used by investors in construction projects to protect in case an unfavorable event occurs causing interruptions or failure to accomplish the project. The disruptions can take place due to a builder’s breakdown, or the job’s unability to meet specifications as mentioned in the contract. Let’s discuss about different types of construction bonds, shall we? Type 1 (Bid Bonds) - Also known as tender bonds, these are generally on-demand bonds that are submitted with a tender for the purpose of securing a tender’s commitment to start the contract. As there will be numerous companies bidding for the same project, providing an open bid indicates that the bidder is trustworthy. Type 2 (Performance Bonds) - A performance bond is used as a means of insuring a client against the contractor’s risk of meeting obligations as mentioned in the contract to the client. This bond gives an assurance to the client that the project will certainly be accomplished. Type 3 (Payment Bonds) - A payment bond guarantees proper payment for services should contractors declare bankruptcy while working on projects. The bond amount can well be used for the purpose of recompensating suppliers, subcontractors and others who were a part of the project in case the contractor isn’t able to pay them. Type 4 (Maintenance Bonds) - As per the maintenance bond, if the building work is faulty, the construction company will take charge for making the necessary repairs. Type 5 (Subdivision Bonds) - A subdivision bond is a financial guarantee for the accomplishment of a private real estate development, usually with a long duration. Know that a builder making a purchase of a construction bond can be trusted. These are the bonds which ensure that the construction company will do its job that it says will do that too on time. A construction bond not only protects the construction company but the client as well. So, it serves a dual purpose. In fact, there is no such reason for a construction company to not have these bonds. A new company with either little or no experience in the construction industry can acquire this bond in a week. The main reason why a client chooses to work with a construction company is that this bond provides a form of insurance for the project. If the project is not completed on time or not executed in the way as specified in the contract by the company, the client stands a chance to claim compensation.
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