Ensuring Your Project Will Be Completed With Bonds
Posted on: 25 November 2017
When a large project is being started and contractors are hired for specific segments of the project, the developer will often as the contractor for a legal guarantee that the job will, in fact, be completed. The loss of money that the developer stands to lose if the project is not complete can be huge, It is because of this, bonding the contractor can be necessary. There are several bond types that are used in the construction industry that are designed to protect the developer.
Contract Bonds
The most common bond used in the construction industry is the contract bond. This is required by the developer and the contractor must agree to it before he or his crew can start any work on the job site or project. The idea is that this bond guarantees that the contract will complete his portion of the job. If he does not, the developer can then recover financial losses by filing a claim again the bod. In some states, the contractor is required to have this bond in place before he can be licensed to work in the state at all.
Maintenance Bonds
This bond is also used in the construction industry a lot and it is tied to the maintenance of the property after the work has been completed. It guarantees that any defects found after the project is completed will be repaired without additional cost to the developer. If needed, the developer can use the bond amount to pay for required repairs to the building. Often this is the best way for the developer to ensure that they are not stuck with a large outlay of cash after the project is complete.
Performance Bonds
Also used on large construction projects, a performance bond is particularly helpful and required if the job is a federal project. The bond is in place so that if the contractor walks off the job or does not complete it per the contract, the developer can file a claim against the bond to hire a contractor to finish the job. The bond makes it possible for the developer to get the job completed without having to pay for the replacement contractor out of pocket.
Payment Bonds
In the event that the primary contractor on a job goes bankrupt, the payment bond will guarantee those working under the contractor are still paid. The only limitation of this bond is the value of it. It can only be used up to the amount the bond was taken out for. This and all these bonds are used to protect the developer and the subcontractors on a major project. They are common and used on many large projects, especially federal or state one.
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