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5 Protection Bonds Your Construction Biz Needs To Consider

Construction is a field of business where it’s crucial to do all you can properly. Following all applicable rules and regulations is critical to keeping making sure various levels of government stay off your back. However, they’re also crucial to be reliable and trustworthy to your client base.

Having different kinds of bonds is a very simple, common, and effective means of maintaining accountability within the construction industry. Local and state governments might mandate certain bonds, and you’re likely to discover that some make your construction business more efficient. Knowing the specific bonds your construction business should consider starts you down the right path.

5 Protection Bonds That Can Help Your Construction Biz

Surety bonds actually come in several different formats. There are five in particular that you might need on any project.

  1. Bid Bond: Bid bonds let project owners have confidence in picking your bid over others. This bond assures them of your intention, fiscal stability, and resources available to get the project done as you list in the bid. Project owners who utilize bid bonds in their vetting process do so to rule out bidders who lack resources or realistic expectations. The price of bid bonds does vary on many different factors, but the required coverage might be 20% of a project value in select circumstances.
  2. Contractor License Bond: This one is mandatory in most jurisdictions before you can even get a contractor license. These bonds might also reflect specialties, such as home remodeling, HVAC, electrical, plumbing, roofing, and drywall. How much this bond will cost you is going to be based on the kind of work you do, your credit score, and how much business you do each year. This is often the first bond of many that you might need.
  3. Performance Bond: This bond centers around actual results on a work site. It’s a guarantee that you will finish the contract terms as they are laid out. Federal construction contracts above a certain level mandate these bonds. Many private organizations also require them, as do many state and local governments. It’s crucial to have contract stipulations and objectives spelled out clearly.
  4. Payment Bond: A payment bond means that subcontractors are going to be paid for any labor and services they provide for the project. Payment bonds are very frequently coupled with performance bonds. Premiums are based on contractor credit history and varying factors, but they are usually a few percentage points of the actual amount of the bond. The pricing for performance bonds is similar.
  5. Supply Bond: Unfortunately, supply chain issues hit the construction industry as hard or harder as any other sector. Managing materials has never been easy anyway. Once ordered, you expect materials to be delivered promptly. Supply bonds safeguard against payment problems so that suppliers know they are getting their money. Unlike other bonds on this list, a supply bond might not be required for every project you do. However, they’re still common practice for being projects and nearly anything federal.

Two other kinds of bonds exist that you might need. One is the maintenance bond. The second is the well-construction and pump-installation bond.

A maintenance bond differs from other bonds in that it only applies after a job is finished. These are bonds that provide guarantees for contractor work against material and craftsmanship defects for a certain period of time. They might also be called warranty bonds, in that they are a lot like warranties.

If you drill so you can install a well water pump, that involves very specialized work with a lot of industry regulations. You’ll need proper contractors who can guarantee their work in terms of effectiveness and environmental impact. Not every state actually requires these bonds, but most do. Customers will certainly have more peace of mind if you choose to do this.

Sidewalk Bond

Depending on where your construction site might be, you might need a sidewalk bond in Florida or other states you do business in. Even if the project space is within a lot and doesn’t technically cover any surrounding sidewalks, you might still need this bond because of your impact. Putting up physical boundaries around your project site might cover up sidewalks or make it impossible to use them.

Construction and contracting work might do damage to sidewalks, especially if heavy equipment and supplies have to transit over them. Many municipal governments require sidewalk bonds to pay for such damage or even create alternate sidewalks temporarily to keep pedestrians on the other side of the street or just safely away from a construction site until the work is done.

Requirements for Construction Bonds

Investopedia points out that there are requirements for getting construction bonds in the first place. The first thing you need to do as a construction business is to review job requirements so you can ascertain two things. First, is a bond even necessary? Second, what kinds of bonds would you need?

Next, you would get your bid bond from a reputable surety agent. Once you do, you would submit it along with any proposal you make. If you wind up winning a contract, contact the agent about also getting your performance bond. Then, you can actually do the work. The timing of actually getting a maintenance bond can be tricky based on what stage of work you are in at that particular time.

Protect Your Business

Having the right bonds in place aren’t just technical or regulatory requirements you need to meet just to practice business in many jurisdictions, nor are they just about having protection if things go wrong at certain points. Without these bonds in place, you might not even get business in the first place. Modern consumers can be very savvy, and many of them will do background checks and verify that you actually have arrangements for all these bonds even when you say you do. Make sure you have all of this covered so you actually get business to start with.