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
* Protect your clients
* You adhere to the contract, and if not the client receives compensation
* Provide good faith or collateral deposit to secure future contracts
*Guarantee the value of work, regardless of whether an unfortunate event were to take place
* Can also act as part of a performance or payment bond, which guarantees labor payments and material costs.
* Secure the contractors promise at the time of bidding in accordance with the agreed price and time allowed for completion
*They are not for the protection of the contractor doing the work
When are Performance bonds Used?
Performance bonds provide requirements you must abide by when working with state, federal, or local municipalities. The majority of the time they are required for every public project, 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
The Importance of Performance Bonds
Whenever a contractor passes on performance bonds they will only be limiting their work. It can:
* Limit the company’s growth.
* Only allow you to work on certain types of projects
* Make it impossible in most cases for the government to hire you for public construction jobs
You obviously want your company to get bigger, but without performance bonds the process will be difficult. Utilizing them will ensure your clients that the work will be completed exactly how the contract reads, and within the specified timeframe. While this is true, remember that performance bonds are not considered an insurance policy. They are designed to show the people you work for that you have the financial backing to cover the work.
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