There are three types of
surety bonds used in construction management, also called contract bonds. These
bonds ensure the job is competed on time, on budget, and also ensures suppliers,
laborers, and subcontractors are paid on time and in full.
A bid bond is
obtained before a bid is placed and ensures that the bid will be honored if
selected. A performance bond guarantees the job will be completed on time and
on budget in accordance to the contract.
The last, and most important type of
contract bond for a subcontractor, is payment bond, which ensures that the
general contractor will honor payments due to subcontractors or suppliers.
If you are a
subcontractor, there are a few basic aspects you should understand about how
payment bonds work and what they can mean for you. They function not only as a
safety net to make sure you are paid, but also as a deterrent for poor business
practices.
Surety bonds with Floyd Arthur are only issued to companies who have proven to be reliable and
financially sound. Individuals or corporations who are a risk will not be able
to obtain a surety bond. Take this into consideration if you are looking at
working with a non-bonded general contractor. There is a reason they are not
bonded, and it could result in a loss of time and money for your business.
Although you may be the
beneficiary of a payment bond, it is the owner who will require the general
contractor to obtain it. This requirement is usually part of the original contract
that may also include a performance bond.
A performance bond guarantees the job
will be completed on time and on budget, it does not ensure payment. These two
bonds are often packaged together and titled a “Payment and Performance bond”.
It is in the best
interests of the owner to require a payment bond for several reasons. The
project is far more likely to be completed on time and on budget if all the
subcontractors complete the job they are hired to do as quickly as possible.
Which is far more likely if everyone is paid on time. Making sure everything
and everyone is paid also ensures the project is lien free upon completion.
It is extremely important for subcontractors to ensure the individuals or companies they work with are bonded. They protect your interests and financial security.