When contractors start new projects they usually obtain performance bonds. They are crucial to the overall success of your business, and without them you could be hurting the company as a whole. You should understand why performance bonds are so important, which is why we want to go over a few things with you today.
What are Performance bonds?
In general, Performance bonds are used within the development of real property as well as within construction. In most cases, a contractor obtains one of these bonds from either a bank or insurance company. Usually, they are for projects that the contractor plans on working on. More specifically, they:
* Are surety bonds issued by a bank or insurance company as a guarantee for the completion of satisfactory work
* Help to protect clients
*Ensures the contractor will complete the project according to specifications within the contract and failure to do so ensures the client will receive compensation for any monetary loss up to the amount of the performance bond
*Are also known as a good faith deposit, otherwise known as a collateral deposit, which are used to secure future contracts
*Guarantee the value of work, regardless of whether an unfortunate event were to take place
* Guarantee payment of labor and material costs
* Secure your promise to complete the job in a specified time at the cost you presented during the time of bidding
* Protect everyone but the contractor
When are Performance bonds used?
In most cases, Performance bonds are used for various contracts involved with construction. Often, they are a requirement for state, federal, and local municipalities. Usually, they are required on all public projects. Especially when:
* Contractors work within the public sector
* The project is over $ 100,000 and for the federal government
* The project exceeds state and local laws
Why Are Performance bonds so Important?
Whenever a contractor passes on performance bonds they will only be limiting their work. It can:
* Limit the company’s growth
* Only have certain types of projects to work on.
* Make it hard for the government to actually hire you for public construction jobs.
In the end, your construction company will have a better chance of growing if you utilize performance bonds. They ensure that you will complete the work based upon the specifications in the contract. Plus you will finish the project within the time that was specified. Just remember that performance bonds do not act as insurance for you, but simply states that you have the financial capability to cover the work.
By WikimediaImages from Pixabay