There are three types of surety bonds used in construction management, also called contract bonds. These bonds ensure the job is competed on time, on budget, and also ensures suppliers, laborers, and subcontractors are paid on time and in full.
A bid bond is obtained before a bid is placed and ensures that the bid will be honored if selected. A performance bond guarantees the job will be completed on time and on budget in accordance to the contract.
The last, and most important type of contract bond for a subcontractor, is payment bond, which ensures that the general contractor will honor payments due to subcontractors or suppliers.
If you are a subcontractor, there are a few basic aspects you should understand about how payment bonds work and what they can mean for you. They function not only as a safety net to make sure you are paid, but also as a deterrent for poor business practices.
Surety bonds with Floyd Arthur are only issued to companies who have proven to be reliable and financially sound. Individuals or corporations who are a risk will not be able to obtain a surety bond. Take this into consideration if you are looking at working with a non-bonded general contractor. There is a reason they are not bonded, and it could result in a loss of time and money for your business.
Although you may be the beneficiary of a payment bond, it is the owner who will require the general contractor to obtain it. This requirement is usually part of the original contract that may also include a performance bond.
A performance bond guarantees the job will be completed on time and on budget, it does not ensure payment. These two bonds are often packaged together and titled a “Payment and Performance bond”.
It is in the best interests of the owner to require a payment bond for several reasons. The project is far more likely to be completed on time and on budget if all the subcontractors complete the job they are hired to do as quickly as possible. Which is far more likely if everyone is paid on time. Making sure everything and everyone is paid also ensures the project is lien free upon completion.
In the past, surety bonds were extremely easy to obtain. Today, surety companies like Floyd Arthur New York, have stricter requirements than bond companies that are qualified and reliable.
It is extremely important for subcontractors to ensure the individuals or companies they work with are bonded. They protect your interests and financial security.