Surety bonds are a guarantee that a large construction project will be completed, even if the construction company working on that project (called the principal) defaults on its obligations. Knowing and understanding the details of the surety bond for your large project will ensure that your project is completed in the manner promised to you.
Different Types of Surety Bonds Offer Different Types of Protection
There are different types of surety bonds that ensure principal performance in different ways.
Surety Companies Have Strict Standards
Surety bonds are often issued by companies that are subsidiaries of insurance companies, however, surety policies are not themselves insurance policies. Surety bonds represent a promise that a project will be completed, or if not, compensation will be awarded. Surety companies evaluate and prequalify every contractor they back before they issue a surety policy. This ensures that contractors backed by surety policies are dependable and stable business owners. Contractors must have a reputation for excellence before they are able to take out a surety policy.
Surety Bonds Change With the Project
The premium of the surety bond is dependent on the contract amount. If the amount of the contract changes before or during the project, then the premium for the bond will change as well. Surety bonds last for the duration of the project.
Surety Bonds Ensure Performance
Between 2002 and 2004, over 28% of construction companies failed and went out of business. Surety bonds will ensure that if your project's contractor fails to complete your project for whatever reason, your company's investment will be protected and the project will see completion.
Given the high expectations and standards of surety companies, requiring a surety bond for a project will guarantee completion of a project on multiple levels. Companies making a long-term investment in a large construction project can benefit from surety bonds in a variety of ways. If your company is undertaking a large construction project, contact a surety company, like Hale & Associates Inc, for more information.
Share16 March 2015
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