Contract bonds (also known as construction bonds) are required in most jurisdictions. A lot of times the benefits are overlooked and they’re seen as a hassle. But in fact, contract bonds provide essential guarantees to both parties involved in the contract.
Contract Bonds Provide Value to Clients:
They ensure the original bid.
A bid bond is a type of contract bond that guarantees a contractor will stick to the terms they originally bid. This type of surety bond is submitted along with the bid, guaranteeing the entire process, from start to finish.
They require the contractor to accept responsibility for mistakes.
We all know a project can require maintenance even after it’s complete. A maintenance bond serves as a warranty against defective materials or shoddy workmanship. Maintenance bonds are not always required, but it’s never a bad idea to protect your company from sticky situations once the contract ends.
They provide the contractor with a backup if it defaults.
If your contractor defaults, a payment bond will make sure everybody involved in the project gets paid and you don’t get saddled with that debt.
They guarantee that the client performs the work according to contract.
This is where a performance bond comes in. It’s another required bond that you’ll be happy to have on your side should the unfortunate event occur that the contract is not carried out correctly.
Contract Bonds Provide Value to Contractors:
The client feels safer and more assured.
Being backed by a contract bond provides a level of assurance to the client that the contract will be honored. Having this financial guarantee will help facilitate a better working relationship.
They guarantee completion of the project.
Sometimes you get near the end of a project and realize your company simply doesn’t have the resources to complete it. It happens to the best of companies, but you still want to see the project completed and know that all your hard work didn’t go to waste.
They provide assurance for subcontractors and vendors.
As you’re gearing up for a project, the best subcontractors and suppliers may want to see proof that you are holding a bond. It also serves as an assurance to them that they’ll receive their due compensation.
Despite a large spike in 2007 of state legislation for public private projects (PPPs), last year saw a significant decrease in the number of states that passed such permits. This is likely a result of the diminishing private funding for PPPs due to the current economic conditions within the United States. Additionally, recent reports from the U.S. House Transportation Committee on PPPs could have reflected negatively on them as well. However, international funding may still be an option seeing how PPPs were originally an overseas model. While many are concerned with the concept of PPPs in the United States, state officials should be able to protect public interest in PPPs with concession contracts, in which they have been able to provide oversight and address work force issues.
If passed, Rhode Island Senate Bill (SB) 2323 and 2229 would have allowed anyone who is under a performance, payment or fiduciary bond (claimants, principals and obligees) to file claim against the surety bond company for a bad faith refusal to pay a claim, settle on a claim, or for failing to perform their obligations in a timely manner. The Senate Bill would have authorized claimants to go after both punitive and compensatory damages, and even attorney fees, and other costs associated with the lawsuit.