When running a business, you have to take care of every aspect. You want to ensure that your business is successful and that you’re getting contracts that enable you to provide quality work to your clients.
Performance or surety bonds in construction are required to ensure that your business is fulfilling its obligations to specific projects. If you are looking to understand what performance bonds construction are and what to know about them, read on to learn:
What Are Performance Bonds?
A performance bond is a guarantee that bonds the contractor to perform any obligation under contract terms and conditions. Many project owners will need performance bonds for 50% or 100% of the contract value. In specific projects, you might even be required to provide bonds for less than 50% of the construction value.
However, you must remember that a performance bond is not insurance. Any performance bond involves three parties – you (the contractor), the surety, and the project owner. The surety company’s involvement in this is that they will guarantee your business will fulfill obligations to project owners.
Is It Insurance?
It’s crucial to understand that performance bonds are not the same as insurance. When it comes to insurance, the insurance company gives your business a policy. When your business goes through any mishap mentioned in your insurance policy, you will receive compensation to cover the costs.
With a performance bond, coverage is not only provided to you but to the project owner. When the project owner makes a valid claim against the performance bond, the surety company will be forced to pay the claim. After this, they will look towards your business to recover the losses.
Why is a Performance Bond Needed?
Depending on what kind of business you are running, you might require various types of bonds. Generally, if you are running a construction company, you will need a performance bond for most projects you are running. It is especially required for projects in which government entities are involved.
Technology, service, and trucking industries are some other industries that require performance bonds. In order to fulfill the obligations that are given to you by any project leader or client, a performance bond is required to ensure that trust and transparency remain.
How to Find A Performance Bond Expert?
When looking for a company for performance bonds in construction, or any other industry, you must look for someone reliable. You need to look for a surety company that has been in the area for many years and is known to be trustworthy.
Finding the ideal surety bond provider can be challenging, but you can also ask people in your industry who they use to get a better idea of whom to choose. Even if you have a small business, you can find companies that will cater specifically to your requirements.
Types of Performance Bonds
There are three main types of performance bonds:
- CCDC Performance Bond: It is provided by the Canadian Construction Documents Committee, guaranteeing the performance of the contract by the contractor.
- Form 32 Performance Bond: New standard bond in Ontario by all public entities for contracts worth $500,000.
- SAC Headstart Subcontractor Performance Bond: Preferred by general contractors when looking for bonds from subcontractors.
Depending on your requirements, you can get started with any type of performance bond in no time.