How Do Performance Bonds Work?
Actually there are three phases of a construction project where performance bonds work for both the contractor and the project owner:
- Before The Construction Project Starts: Before the project owner and contractor enter into a contract, the contractor is usually required to obtain a performance surety bond from certified sources. This insures the project owner that the contractor will perform as specified and complete the project and all requirements in the plans. This also insures the contractor that the project owner will make the agreed upon payments for performance.
2. During Construction: Over the span of the project construction phase, the contractor is required to provide regular updates and reports on the project completion progress. This includes reports on their compliance with government laws, building regulations and building codes. Sometimes construction project performance agreements include partial payments to the contractor when certain project phases have been completed. These reports help verify the completion and insure the milestone payments agreed upon.
3. After Construction Completion: When construction is finished and the contractor has performed the agreed upon tasks, the project owner is required to submit final payment. With a performance surety bond in place in the event that the contractor does not complete the project and meet the specified requirements the project owner is insured of financial compensation.
When Are Performance Surety Bonds Required
Performance surety bonds are a vital component in the construction industry. For most construction projects all contractor parties hired and contracted to perform construction, site improvement, grading and other aspects of a project are required to get a performance bonds.
Depending on the location, type of construction project and Federal State and Local laws, in addition to contractors and subdivision developers, certain types of project subcontractors are also required to get performance surety bonds.
Contract performance surety bonds are most often required for large construction projects having a total value of more than $500,000.
Performance bonds are mandatory for public works and other construction projects involving government contracts.
These surety bonds provide financial protection (insurance) for both the contractor and the property owner.
As project material and labor costs continue to expand in today’s construction industry, contractors often seek bank loans to fund project costs during the construction project process. In these cases banks and other financial lenders may require a performance bond to protect their investments.
Project owners are legally required or usually prefer to have the financial and legal protection that performance surety bonds provide.
How To Get Performance Surety Bonds
Because of the necessity of performance surety bonds in the construction industry the process to get contract performance bonds is relative straight forward.
The right surety bonding company has developed streamlined processes to get contractors the bonds they need fast. Quick and free bond cost quotes are an essential way to start the contractors relationship with a surety bonding services company.
They also provide online applications that can be quickly filled out and then processed. These components give contactors the benefits of efficient surety bonding services.
In addition surety bond brokers that can underwrite and issue bonds in house directly from their offices provide faster, more complete services.
Surety companies that have appointments with multiple established bonding carriers give contractors the valuable and cost saving service of being able to negotiate and match each contractor with the most suitable bond and bonding company. This means contractors will get the right bonds at the right costs for their company and for the projects they are working on.
Experienced surety bond services companies specializing in construction contract bonds are able to not only get the best rates on bonds but also help contractors get the right bonds for the specific project they are working on. This can often provide faster service and greater cost savings.
Another component in getting performance surety bonds quickly and effectively is when the surety bond broker that you choose to work with has Power of Attorney for all the surety companies they work with.
A surety bonding company with the top competitive rates in the industry, established relationships with numerous bond carriers and who can issue bonds in all 50 states is the best choice for getting your contract performance surety bonds.
Because getting performance surety bonds is a standard construction industry practice the process is easy and direct. Contractors first search for and make contact with a surety bond services broker company that specializes in construction contract surety bonds.
The bond company has the contractor provide required documents which enable evaluations of risk. These documents include financial statements.
After the bonding services company has completed the contractor evaluation, they determine the cost of the bond. Surety bonds costs are usually a percentage of the total project cost. The bond services company will then provide a performance bond for the project.
It is also important to note that the performance bond needs to be in place before the project starts. This is why it’s important to budget for the cost of the bond and not wait until the last minute to obtain one.
Performance Surety Bonds Information Conclusions
Getting performance surety bonds for your construction projects is important to ensure the your company can begin work and complete the project. The surety bonding company provides the project owner with insurance that the contractor can complete the project according to the agreed upon terms, which include performance to specified plans and project timelines.
Obtaining construction project contract surety bonds is a straightforward process. The surety bond services company will assess the contractor’s risk before setting the cost of the bond. Getting the bond in place before the project starts is essential to ensure the project begins and progresses on schedule.
Performance surety bonds are a critical part of the construction process and obtaining one for your project will ensure peace of mind for all stakeholders involved.
Peoria, Arizona dre bonds services broker specializing in contractor and subcontractor performance, payment and bid bonds for public works projects, White Lion Bonding & Insurance Services has expanded all surety bond broker services Nationwide.
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