As we discussed in our previous post, surety bonds function very differently than insurance policies. They also play a very unique role in the construction industry. Middlesex County contractors and subcontractors will regularly encounter surety bonds throughout the course of their career and as such should be familiar with a few common types of bonds and how to obtain them.
Bid bond are obtained by a contractor or subcontractor when placing a bid on a project to guarantee that they have the financial resources to undertake the project at the set bid price. These bonds are the offer financial assurance to the project owner that a bidding contractor is serious and well prepared to undertake the project at hand. Once obtained bid bonds guarantee to the project owner that the principal will honor its bid and will sign all contract documents if awarded the contract. Should the principal refuses to honor the bid, the project owner is entitled to financial compensation for the difference between the winning bid and the next lowest amount, as well as any other costs incurred due to the contractor’s default.
Once a bid has been accepted and a project has been awarded to a contractor, the contractor will then have to obtain a performance bond. These bonds act as financial guarantees that a project will be completed according to the contractual specifications, especially completion time and price. Just like with a bid bond, if the contractor defaults or is terminated for default by the project owner, the owner may call upon the surety entity to ensure completion of the contract. This means that the surety company will either have to completing the contract itself by taking up the contract, select a new contractor to contract directly with the owner, or allow the owner to complete the work and compensate the costs incurred.
Payment bonds guarantee that subcontractors and suppliers will be paid what they are due. These bonds are slightly more complex because there are now multiple parties involved, however the agreement is still between the contractor and the project owner. Subcontractors and suppliers are listed as “beneficiaries” of the bond which also gives them the ability to sue the bond should a contractor fail to properly compensate them. The project owner benefits indirectly from a payment bond because the subcontractors and suppliers are assured of payment and will continue work on the project.
There are many more types of Middlesex County surety bonds available to contractors, including financial guarantee bonds, license & permit bonds, and various miscellaneous state and municipal bonds. At Sinclair Risk and Financial Management we offer a complete array of surety services to businesses through Connecticut. As part of our holistic risk management approach, we specialize in providing complete business insurance and strategic solutions. Our Middlesex County Surety Bonds specialists can help you secure the financial qualifications you need to stay competitive. Give us a call today at (877) 602-2305 to learn more about all of our unique business solutions today.