For a contractor, having a contractor bond is of utmost importance, as they will be expected to provide that bond for most of the jobs that they apply to. This bond assures the client that just in case the job done by the contractor is unsatisfactory, for example, if the job is incomplete or doesn’t meet the requirements, then a company will provide the surety and the necessary funding to finish the incomplete work. A bond, in most cases, is project specific, and so, if you want to learn more about how to obtain a a contractor bond quote and what its requirements are, then keep reading.
Types of contractor bonds
For large jobs or for jobs for the government, bonds are a requirement, as that is what approves a contractor’s bid before they’re even selected. For the job to be awarded, there are a few different bonds that a contractor needs to know about. Firstly, there is the performance bond, and that is one that most owners will ask for. This bond ensures that a surety company will get the job done if the contractor doesn’t.
Aside from that, a surety company and the contractor must also provide the client with a payment bond. This will ensure that in case the contractor fails to meet the needs, the surety will financially cover the sub-contractors or the employees of the contractor. And finally, the last bond that is necessary is the material and labor bond, which ensures that the suppliers of materials are properly paid.
For a contractor to receive a bond, the first thing that they need is experience. Not only does the contractor need to prove to the surety company that he/she has the experience to complete the job, the contractor also needs to prove that he/she has the track record reflecting his/her capabilities. The more history and experience a contractor presents, the likelier it is for them to get the contractor bond quote.
Cost and financials
A financial statement must be submitted to the surety company, proving the contractor’s ability in making a profit in the past few years or the last several projects. Additionally, the bonding company will also want to know whether the contractor is financially secure or not, by checking that he/she has billables and/or assets, and sufficient ready cash.
The bonding amount secured by the contractor is also dependent on the contractor’s track record and experience. Contractors usually establish a good relationship with a specific bonding company. As the contractor completes more jobs and the surety begins to trust them, the surety is more willing to risk a larger sum of money.
Finally, a contractor needs to know that a bonding isn’t free. The contractor has costs too, although most of it is being covered by the surety. A percentage of the bond’s amount needs to be paid by the contractor to the surety. Although this is only about 1%, the amount increases if the surety feels that there is more risk.
It is important for a contractor to have a bond, as without it, it will be almost impossible for them to get jobs. These bonds ensure their financial liability.