A surety bond is not like a business insurance policy. A surety bond is a guarantee in which the surety guarantees that the contractor, called the “principal” in the bond, will perform the “obligation” stated in the bond. For example, the “obligation” stated in a bid bond is that the principal will honor its bid. The “obligation” in a performance bond is that the principal will complete the project. The “obligation” in a payment bond is that the principal will properly pay subcontractors and suppliers. Bonds frequently state, as a “condition”, that if the principal fully performs the stated obligation, then the bond is void; otherwise the bond remains in full force and effect. Get a Quote now.
There Are Generally Three Types Of Bonds Used For Construction Projects
- The bid bond assures that the contractor, if chosen for the project, will enter into the contract and provide any required performance and payment bonds.
- The performance bond assures that the contract will be completed in accordance with the contract, or that the funds will be provided to complete the project, up to the amount of the bond.
- The payment bond assures that subcontractors, suppliers, and laborers will be paid for their work.
Why Projects Go Bad
Both owners and contractors agree that project failures have common characteristics. Some of which are; the inability to meet the project schedule, timely payments, failure to order material in a timely manner, failure to understand contract terms, lack of safety programs, project design flaws and lack of project management. Some of these can be preventable through communication and reasonable expectations between all parties.
Having a good understanding of the bond application and review process, and developing relationships with your agent, banker, and surety underwriter can only benefit you and help you grow your business.
Over the past 26 years, Worthington Insurance, Inc has been a part of its vibrant tight knit Yardley community. Worthington has shared in the joys of participating in various festivals and parades and the sorrow, along with our neighbors and clients, of flooding in our low lying location along the canal. In the end though, everyone at Worthington is truly enamored with the good citizens of Yardley and with the long tradition of service and honor conveyed by our historically significant location.