A construction bond is a type of surety bond that is used by an investor in construction projects to protect against adverse circumstances or instances that cause failure to complete the project due to the insolvency of the builder(s), or the job’s failure to meet contract specifications. Usually, three parties are involved in the construction bond such as a) the parties involved in building the project, b) the prime owner or the investor of the project and lastly, surety company that backs the bond.
It may be called as “construction surety bond” or “contract bond”.
Breaking Down ‘Construction Bond’
There can be the various thing that may go in the wrong direction owing to the conditions as assumed in the large scale projects, therefore, construction bonds are almost a mandatory requirement of any project beyond a certain size, and for most (if not all) government and public works projects.
In the case of larger projects, contract bonds may come in pieces; first to protect against overall job completion and specifications and the other one is to protect against the cost of materials from suppliers and subcontractors.
Surety companies which back the bond generally find out the financial merits of the principal builder involved with that project and on the basis of that, they take the premium.
There exist various types of construction surety bonds. Few of them have been mentioned below.
Construction Surety Bond Types
In this type of bond, it becomes important for the contractors to submit solid bid proposals. These bonds assure that the project developers have the financial qualifications that are necessary to accept the job. If a bid is selected then the contractor has to necessarily perform the job, but when the bidder retracts the bid, the project developer can make a claim on the bond to recoup the difference between that bid and the next-highest bid.
This type of bond guarantees that the project should complete on time as per the defined terms and conditions under signed contract. If that does not happen, then the developer can make a claim on the bond.
This ascertains that there is a proper payment for services in case the main contractor go bankrupt when working on projects. The bond amount can be used to reimburse suppliers, subcontractors and others who worked on a project if the lead contractor is unable to pay them for their work.
There are other bonds available online, to know more about it check out the details mentioned on the website or directly call agents.