Most construction projects require contractors to provide bonds, which protect the owner against non-payment, lack of performance, shuttered business, or warranty issues. Also known as contract bonds, construction bonds guarantee the bondholder will fulfill the contract terms.

Contractors generally purchase construction bonds to protect project owners from monetary loss. If an issue arises, the owner can file a claim with the surety company, which will intervene to guarantee the contract is fulfilled. After the bond claim is settled, the surety will recapture all expenses from the contractor who purchased the bond, according to the terms set by their agreement. 

Main Parties Involved in Construction Bonds:  

Principal
The person or company purchasing the bond, typically the general contractor or subcontractor. 

Surety
The company that provides the bond for the project, is generally responsible for arranging the completion of the contract if the contractor fails.

Obligee
The party protected by the bond, usually the property owner, public agency, or other party. 

Most contractors need a bond because they are used on construction projects whenever the owner needs additional monetary protection during a project. Construction contracts can provide a decent level of protection, but a breach of contract can be expensive, time-consuming, and often requires court.

Securing a construction bond should be done with a reputable surety broker, who will advise you on the best way to submit your program requirements to a surety company.  Surety brokers will also make sure you receive the best terms and conditions. 

If work does not get completed, the contractor defaults, or payments are not being made accordingly, a claim against the bond can be filed. After a claim is made, the company will investigate, and the principal will be contacted to verify facts and amounts. 

To settle a bond claim, the surety might hire a new general contractor to finish the job, pay the obligee for damages sustained, or issue a payment to a subcontractor who wasn’t paid according to the contract.

We have decades of surety bonding experience, from simple to complex; contact us to learn how we can assist you. 

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At Construction Bonding Specialists, we work with new and experienced contractors to find the most satisfactory bond solutions. As a distinct surety-bond-only agency with decades of bonding experience, we work to discover surety solutions for all types of cases ranging from ordinary to challenging. Call us at 248-349-6227 to learn more.

Written by the digital marketing team at Creative Programs & Systems: https://www.cpsmi.com/