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