Gogagah.com | Betting is, by its true nature, is a risk-ridden way to not only fill your time but also to make money. And construction companies do that every day! How? They often take risks and wager money on the things that perhaps work for them.
However, others mitigate risk on projects through risk management or by determining the appropriate and fiscal option that ensures timely delivery of the project. Either way, the risk is high, and the results could be disheartening.
Solution- surety bonds!
Surety bonds offer financial security and construction insurance to project owners. It offers assurance that all contractors will do their work and will pay everyone from laborers to subcontractors and material suppliers.
What Are Surety Bonds?
A surety bond is a third-party agreement, legally binding contracts, which ensure that the contractor will perform as per the terms of the contractor. It covers a bunch of different bonds, including performance bonds, bid bonds, payment bond, and other bonds. Also, the surety bonds ensure that the obligations should be met between three parties viz.
- The principal (subcontractor): they are the one who needs the bond
- The obligee (contractor): who requires the bond
- And the Surety: it’s the insurance company who’s guaranteeing that the principal can fulfill the obligations.
How Do Surety Bonds Work?
It works as a form of insurance to the obligee, as they are more like beneficiary who can file the complain if the promise of the bond is not met. Also, it’s a credit to the principal to offer claims that should be repaid by the principal to the surety.
This further means, when you get the surety bonds, you need to abide by all the terms to avoid any claims. You are not only expected to pay every single payment, but also other expenses like legal costs and more.
Things You Need To Know About Surety Bonds:
- It’s a third party agreement, in which the company assures that the owner and contractor will get payments
- The bid bonds of surety bonds ensure that the bit is made with good faith. This also means that the contractor will enter the contract at the prices that are quoted and will offer payment bonds and required performance. Moreover, the performance bonds keep the owner protected from all the financial losses.
- Almost all surety companies either work with insurance companies or are subsidiaries of them. The insurance is designed to compensate the insured person against sudden events.
- The premium of the policy is determined on the basis of aggregated premium earned versus expected losses.
- Surety bonds are required by the owners of a private company to protect owners and stakeholders from the huge cost of contract failure.
- It helps screening-out the unqualified contractors and also offer assurance that everyone involved in the project can complete the project.
- The general cost of a bond is three percent; however, it may vary depending on the size of the project
Things You Don’t Know About Surety Bonds:
- Although every surety bond has a unique set of guidelines, it’s not difficult to get them
- They are not expensive; you only need to pay a small percentage called bond premium
- Surety bond premiums are one-shot payments; they are not recurring monthly
- You will get qualify for the surety bonds even if you have a poor history of credit score
- Since these bonds are to be filled in civil lawsuits, they are legal contracts
- You don’t need a new bond if you want to update or change anything in the bond that is in effect
- Irrespective of the reason, the principal will pay for the claim
Now that you know surety bonds take some time review your company and check if you have problems keeping surety bonds!