Bonds Copy- Customer Friendly
The scope and scale of a contractor’s business runs parallel to its bonding ability. Definitive capacity, in both quality and quantity, is in direct correlation with ensuring that any party acting as the surety delivers performance and payment bonds when the time comes. A bond is, therefore, a contract arising out of the General Indemnity Agreement (GIA) – a consensus establishing relationship parameters.
The Basics of Bonding
The greatest metaphor for describing bond origination is that of a ‘two-way street’, with one lane going one way and vice versa. While the surety agrees to properly issue bonds on behalf of the contractor, the latter indemnifies the former against any costs incurred on the back-end. This specifically refers to monies paid out to owners and other leading entities. Once the GIA is finalized, the surety will gauge the strength of each project against the business’s true ability to perform prior to supplying a number of bonds. It is basically all about confidence.
The Different Types of Bonds
After a contractor determines that they want to proceed on a particular project, they will then make an application to the surety just as an employee appeals to a potential employer. Upon evaluating the scale, cost, and type, the surety wither approves or disapproves of moving forward with underwriting.
The Bid Bond is typically the first to be written. Once the owner and the contractor come to an agreement on price, this type of bond protects the owner should they be forced to climb the bid chain due to plans made based on the original agreement.
When its time to execute on the project details, the Payment Bond covers payments to be made from the contractor to sub-contractors, material suppliers, and other parties.
The Performance Bond is simply related to the completion of the project according to contractual components and other prearranged specifications.