“Many state laws and regulations require a construction bond prior to starting a project. There are a variety of bonds available for different phases, projects and entities. A performance bond may be required by either a private company or the government.
What It Is
A performance bond provides the company with a guarantee that your construction firm will complete the project satisfactorily. The bond company steps in should the construction firm not finish the project as assigned. The experts at Daniels Insurance state that a payment bond is often paired with a performance bond to avoid incurring a loss.
How It Works
Government entities wish to protect their investment of taxpayer dollars in the project, so they often require a performance bond for large projects such as roads and bridges. They work off the provisions in the signed contract to determine whether or not to make a claim on the project. The bond can pay the loss incurred by the project owner or brings in another firm to complete it.
What You Need
In order to obtain a performance bond, the company may require financial statements for the past two years, application, owned property as collateral and contract copy. Some contractors may use a cash method, but many use the completion method.
Most projects of large scale require at least one construction bond. Knowing the right one to obtain can help you stay on top of the project and keep your client happy.