As a contractor, there are several different types of construction bonds you should be aware of. The purpose of a construction bond is to guarantee the construction to completion. It’s a type of surety bond that protects against financial loss should a contractor fail to complete a project. These are often required by the government for jobs in the public sector. Additionally, private entities may require them in some instances.
How Does a Construction Bond Work?
This type of surety bond is also known as a contractor license bond. It’s required for specific construction projects. The insurance firm iSure states that “you need to offer your clients a financial guarantee that you will perform according to the terms of your agreement.” This surety bond is required for almost all government or public projects. When bidding on a project, potential contractors are required to put up bonds.
If a contractor fails to meet the conditions set by the contract, the contractor and the surety are both held liable. The owner can make a claim against the bond to recover damages or financial loss if the contractor fails to complete the project as agreed. If the contractor defaults or claims bankruptcy, the surety will be held responsible for the compensation due to the project owner.
Surety bonds are an important part of construction job bidding. Make sure you know the ins and outs in case someone makes a claim against one.