Most entrepreneurs consider surety bonds as an unwanted necessity imposed by the government and obligees. This is far from truth, since surety bonds come with long list of benefits for both obligees and contractors. In this article we are going to inspect how surety bonds can help your business.
Contractor’s surety bonds and basic benefits they come with
There are some general benefits all contractor’s surety bonds come with. They…
- Protect contractors from capital claims that might occur if an obligee is not satisfied with their work;
- Help contractors to undergone strict project competition with much less paperwork and hassle;
- Motivate contractors to finish awarded projects faster, since they often require company owners to provide corporate or personal indemnity;
- Are governing complicated relations between obligees, contractors and subcontractors and make biding and project work more transparent for all sides;
- Provide contractors with more bidding opportunities;
- Enable contractors to use all of their assets in order to complete the project successfully.
In addition to this, all surety companies guarantee that they will finish the project in case of contractor’s default. Although contractor is required to pay for project completion (plus legal costs), this way surety companies protect contractor’s reputation and enable them to keep their company running and bid on future projects.
Surety companies usually provide expert help of their agents and underwriters, who have a lot of experience in both construction and legal side of project work. They offer technical, financial, management and legal help to all of their clients.
Specific benefits each type of contractor’s bonds provides
Surety bonds protect both obligees and contractors in all kinds of arrangements that follow construction projects. There are several types of contractor bonds, with each covering one project phase and providing special set of benefits for both obligees and contractors. There are:
- Bid bonds– They protect the public from irresponsible bidding and allow contractors to bid to various types of construction projects, with or without government funding.
- Performance bonds– These bonds represent a guarantee to obligees that project performance will go in accordance to plan and it will be finished in a timely-manner. After contractors are awarded with the project, these bonds allow them to start their work.
- Payment bonds– Payment bonds are especially useful for subcontractors, laborers and staffing firms. They guarantee that contractor will pay all work provided by third-party companies and individuals.
- Maintenance bonds– Projects that include warranty in most cases require contractors to purchase maintenance bonds. They guarantee that contractor will conduct regular repairs and maintenance.
- Supply bonds– Entrepreneurs who run supply companies need to purchase supply bonds in order to work on projects that require them to deliver materials.
Other types of bonds and the ways they can help your business
Other major type of surety bonds are license surety bonds. This type of surety is required for entrepreneurs that are starting various types of service businesses. This includes: opening a car dealership, travel agency, brokerage etc. License surety treats consumers as obligees and it secures that companies provide good-quality service that is in accordance to government standards. These bonds also protect entrepreneurs and their companies from capital claims and guard their reputation in front of consumers.
All other types of bonds can be classified under ‘Commercial Bonds’ group. There are many different types of commercial bonds with Fidelity surety being the most useful one for entrepreneurs because it protects companies and their customers from fraudulent activities of their employees.
In addition to all benefits we mentioned, surety bonds represent an obligation to all contractors bidding on expensive projects. This means that without buying surety bonds from registered agents and underwriters, contractors can’t even enter the bidding process, which is why surety represents an utmost necessity for every entrepreneur who wants to do business on construction market.