| The construction industry is a very good | | | | well as worthwhile in spending time for |
| competitive marketplace. Contractors used to | | | | establishing their relationship along with a |
| come across several projects that require | | | | surety company. It needs to be gathered and |
| them for as long as surety bonds guaranteeing | | | | carefully analyze information before agreeing |
| their recital of the contract and looking out | | | | to the requested work programs since the |
| for sustaining a steady flow of work as well. | | | | surety company is guaranteeing a contractor's |
| Surety bonds are required of contractors on | | | | performance. It takes some time to develop |
| public projects let directly by federal, | | | | and present data, address questions the |
| state or local government agencies. Private | | | | surety may have and validate credit and |
| owners are in need of bonds for their | | | | performance experience. The surety must be |
| contractors. Generally trade contractors are | | | | contented that the contractor is of good |
| linked to the public owner depending on the | | | | character before issuing a bond; has the |
| projects employing a construction manager of | | | | experience that matches the requirements of |
| their own; and subcontractors may also be | | | | the projects to be undertaken; and to end up |
| mandatory to 'bond back' to the general | | | | with the equipment necessary to carry out the |
| contractor on projects whatever it might be | | | | work. |
| public or private. Here come the basic | | | | |
| categories of contract surety bonds: | | | | Often the bond company looks to the |
| | | | principals of a contracting organization to |
| 1. The bid bond presents financial assurance | | | | stand behind their company, just as the bond |
| that the bid has been submitted in good faith | | | | will do and they are depositing their whole |
| and that the contractor proposes to enter | | | | assets at risk in support of the construction |
| into the contract at the price bid and also | | | | operation they are undertaking when the |
| provide the required performance and payment | | | | principals and their spouses "sign on the |
| bonds. | | | | dotted line." This verifies to the bond |
| | | | company that they aren't likely to turn at |
| 2. The performance bond protects the obligee | | | | their backs on the bond company should it |
| from financial loss should the contractor | | | | have to spend money for finishing a project. |
| fail to perform the contract in accordance | | | | The bond company may also use personal net |
| with the terms and conditions of the contract | | | | worth, or liquidity, to bolster the strength |
| documents. | | | | of a case. But it will fully drain each and |
| | | | every personal net worth rarely when |
| 3. The payment bond guarantees that the | | | | implementing the indemnity in the event of |
| contractor will pay all subcontractors, labor | | | | claiming. |
| and material bills. | | | | |
| | | | Normally surety companies have lots of |
| 4. The maintenance bond guarantees for a | | | | qualifying requirements for their preferred |
| specified period of time after completion of | | | | rate. Surety rates are set and also approved |
| construction work that the contractor will | | | | by the state as well. Contract surety bond |
| maintain his or her work in accordance with | | | | rates can vary in at least two ways. At first |
| the contract warranty provisions. | | | | there are different classes of bonds. Most |
| | | | road paving work is classified as Class A. |
| 5. Although most surety companies are also | | | | The Class A rates is somewhat lower than |
| large insurance companies, qualifying for | | | | Class B. Secondly most of the surety |
| bonds is more like obtaining bank credit than | | | | companies have a standard rate and a |
| purchasing insurance. | | | | 'preferred' rate for both Class A and Class B |
| | | | bonds. |
| Most contractors find it both necessary as | | | | |