A construction bond, also known as a condition bond, is a surety bond that binds the project owner and the contractor. A surety bond is a written statement that protects both the project owner and the contractor. If whatever is agreed upon by both parties in the surety form is not adhered to, the contract becomes void and could be subjected to a penalty by the court. Construction projects come with various types of worry. Therefore, the bond is mandatory to financial investors interested in any form of large structures.
The Beauty of Contractor Bonds
To define surety, it is a promise made by a guarantor also known as surety to pay the obligee a specified amount of money if the principal fails to fulfill terms of the contract. In construction bond, the obligee is the owner of the project, the principal is the contractor, and the surety is the company selling the bond, it can be the insurance company.
The bond protects the owner of the project through risk transfer. The contractor has to show he is competent, financially stable and capable of finishing the project without any complications. The insurance company steps in to give assurance that the contractor will perform his/her work within the fixed budget and the time frame requirement via a written contract.
A construction bond can cover a project of any size. It does not matter whether the project is big or small and any contractor, whether experienced or inexperienced, can obtain this bond within a week. Contractor bonds – www.contractorbond.org is a popular and affordable company many contractors utilize.
There are various forms of construction bonds:
This is a written statement which assures the principal(contractor), that the obligee(project owner) will offer the bid as awarded in the contract. If both the principal and the surety fail to fulfill the terms of the contract, the obligee can sue them for any extra expenses incurred due to breaking the contract.
This bond assures the obligee that the principal will complete the contract as per the agreed terms and conditions in relation to time and budget. It protects the obligee against frauds and misrepresentation. The obligee as the owner of the contract may sue both the principal and the surety, in failing to commit to the contract. Where the principal fails, the surety completes the contract. The surety may decide to complete the contract either by retaining the contractor or hiring another contractor by paying extra money to the owner. The penalty of extra money is nullified if the surety maintains the contractor. The surety, in this case, takes full responsibility associated with the contract without loss of time or money to the obligee.
The payment bond guarantees that the obligee will pay the principal the amount of money mentioned in the contract without fail. This bond protects the principal against risk if the obligee fails to fulfill the terms and conditions in the contract.
This bond is between the principal and the subcontractors or suppliers. It guarantees that the suppliers will supply materials as mentioned. It protects the contractor against the loss of both time and value.
To conclude, construction bonding for contractors protects the interests of both the project owner and the contractor