Building projects can be unpredictable places of work. Sometimes the supplies are delayed, other times the contractor doesn’t deliver on time. Is there some way to make sure that nobody is shortchanged and the work also gets done?
Let’s start with the simplest and most pressing of all questions- what is a contractor bond?
A contract bond is a necessary document when the work undertaken is on a public project. It is needed by the government or state laws. The bond is a way by which the completion of the job can be assured. While it is mandated by the government, many a times the owners of the project or a contractor might require it. The bond should not exceed 100,000 dollars.
Contractor bonds can also be in the form of a license that lets you work as a licensed contractor. Depending on the state you’re practicing in, the rates and requirements differ. The contractor bond is vital for every contractor to work hassle-free. The bond is enforceable according to law and comprises three main entities.
- The principal is the professional who buys the license bond.
- The obligee is the client who needs the contractor to buy the bond.
- The surety is the company that issues the bond. This bond is a guarantee that the contractor carries out his obligation.
In case the contractor reneges on the promise, the obligee can use the contractor bond by way of compensation for the breach of promise. The contractor will need to reimburse the amount to settle the claim as required. Also known as surety bonds, contractor license bonds are also described as a line of credit.
There is a difference between contractor bonds and insurance. The key difference is that insurance does not cover indemnity. Contractor bonds necessitate indemnity. This means if the contactor has broken a law or done something that is not acceptable to all parties concerned, then the contractor will have to pay the amount of the claim, that is, surety, and the extra charges. Looking for a contractor who is bonded, and not just insured is vital for the protection of the project and to ensure that it goes according to plan.
The process to get a contractor bond happens across a few stages:
You need to think about what kind of bond you need. When it comes to government jobs and public works, the contract bond will have to take into consideration all the aspects of the area in which the work is to take place. This means, the state law that governs contract bonds comes into play here. And each state has a different law. You may also need more than one kind of surety. For instance, plumbing, electrical work etc. The contractor might need different types of sureties in this case. It’s absolutely vital to know what kind of state laws exist and to get bonds that pertain to them. Then you apply for the bond and submit it. If things go well, the license is received.
For business owners hiring contractors, make sure you find a contractor who is reliable in the first place and that the contractor bond is legitimate and present when engaging in projects with them.