There are always risks involved with construction projects and investors want to be protected in the event that something goes wrong. It is standard practice for guarantees of performance to be written into contracts these days, so construction companies need to be approved for contract bonds if they are to be successful.
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Pinnacle Surety is here to help you wrap your head around commercial surety bonds for construction projects and answer any big questions you might have.
How Do Commercial Surety Bonds Work?
In a nutshell, commercial surety bonds are written to protect contractors or other parties involved in construction projects. If the contractor doesn’t complete the project by the specified date, then these bonds ensure that investors receive their money back minus any costs incurred while completing the project.
The bond guarantees your customer will get what they’ve paid for when they need it. For example, if you aren’t able to perform on schedule due to an unforeseen accident, then you could still be held liable for damages should there be consequences like the loss of potential revenue.
Why Do Commercial Surety Bonds Matter To Construction Companies?
Commercial surety bonds matter because many financial institutions won’t finance construction companies without them. When bidding on construction projects, you are usually required to have performance bonds in place beforehand too.
Without commercial surety bonds for construction projects, you reduce your chances of winning the best jobs. This is especially true for government work—the government won’t contract with or pay any company that isn’t guaranteed by a bonding company.
If you want to expand your construction business and land more lucrative contracts, we can help you manage your surety bonds.
What Kinds Of Surety Bonds Are Available For Construction Projects?
There are a number of surety bonds commonly used depending on the type of construction project, the parties involved, and the level of protection that is needed. These are some of the bonds that Pinnacle Surety can assist you with.
A contract performance bond is a guarantee that the contractor will complete the project by a certain date, to an agreed-upon standard. In many cases, the performance bond must be put up before any work begins on the construction site to protect investors from possible financial loss should there be delays or cancellations.
When people hire a contractor, they are putting their trust in them and there is no automatic guarantee that the work will be satisfactory. There is also the potential for contractors to leave before the job is finished. This level of risk is dangerous for investors, property developers, and government organizations running projects, which is why many of them require performance bonds as a guarantee before they will consider working with you.
In some cases, you might have to provide additional protection with payment bonds. These are guarantees that subcontractors and suppliers will also get paid if they complete the work in accordance with their contracts. When a contractor brings subcontractors onto a project they are liable for paying them. If the contractor fails to pay them, this can cause disputes and bring the whole project grinding to a halt. Payment bonds make sure that doesn’t happen and everybody is paid for the work that they have completed.
Bid bonds support your bid with an agreed-upon sum of money that is forfeited if you withdraw from the bid after being awarded the project. Developers can incur large losses when contractors pull out of the job last minute, which is why bonds are required in most bidding processes. Although construction companies can still bid on certain jobs without surety bonds, the most desirable ones usually require financial protection. So, if you are looking to expand your business, it’s vital that you use bid bonds.
This type of bond protects against default by ensuring that property owners have installed proper sewer and water services, roads, and other components to support the subdivision. Subdivision bonds are needed for projects involving more than one lot, like apartment buildings or housing developments. The agreement is made between the developer and the local authority and will include details of the improvements that must be made during the development. If the contractor does not carry out the work that was agreed upon, the subdivision bond covers the cost. In most cases, construction companies will not be able to begin work on these kinds of projects until a subdivision bond is in place.
How Much Money Is Needed For Surety Bonds?
The amount of money that you require for surety bonds depends entirely on the job itself. Government construction jobs are usually more expensive because they often require higher compensation for risk—they will ask for larger sums of cash or assets as performance guarantees before accepting bids. Other construction projects may only demand smaller amounts or even nothing at all because there isn’t much risk involved—for example, subcontractors asking their suppliers to provide payment bonds.
How Can Pinnacle Surety Help With My Contractors Bonds?
Pinnacle Surety is a leading provider of surety bonding in the United States. We have helped countless contractors meet their obligations with these types of bonds and have worked with the government, developers, investors, lenders, and subcontractors to provide financial solutions for their specified needs. Our experts are well-versed in the construction industry’s legal requirements for performance bond guarantees and can help you establish sound protection that will lead to success in your field.
Without the right surety bonds in place, construction businesses will be locked out of the bidding process for the most lucrative jobs and won’t have the trust of their clients. But we aren’t just here to provide the bonds, we can also assist you in managing cases when claims need to be made. Navigating the responsibilities of each party when contracts are broken can be complicated, but don’t worry, we are here to manage things for you every step of the way.
Contact us today to learn more about how we can help you set up surety bonds for construction projects!