Do you know what a performance bond is? It is widespread for contractors to take out a surety bond to guarantee their work in the construction industry financially. Essentially, a contractor agrees to complete the job according to the contract terms. If they default on their obligations, the surety company that issued the bond will cover the cost.
Asking for a performance bond from your contractor offers several benefits, including:
1. Protection against Poor Workmanship:
If they fail to keep their end of the bargain, the surety company will step in and cover the cost of correcting the situation. This means that you will not be left out of pocket if they do a terrible job. For example, if they do not finish the job on time or to the specified standards. In that case, the surety company will cover the cost of hiring another person to rectify the situation.
2. Financial Security:
If they default on their obligations, the surety company will cover the cost. This offers peace of mind and financial security, knowing that you will not be left out of pocket if something goes wrong. It also means that you will not have to worry about them disappearing without finishing the job.
3. Increased Competition:
Asking for a bond from your contractor will increase the pool of potential professionals, as not all can obtain it. This means that you will have a broader range to choose from, giving you the best chance of finding a reputable and reliable one.
Did you know that it is the industry standard to request a surety bond in some industries? Asking for a bond shows that you are serious about your project and are only interested in working with the most professional and reputable contractors. In some cases, it may even give you negotiating power with them.
5. Ensures Adherence to Time Constraints:
The contract time frame is held binding from the moment a bond has been issued. This helps guarantee that contractors adhere to schedule and work diligently to meet deadlines—the less time spent on a project, the lower the costs. As a result, a bond can be an excellent incentive for everyone involved to complete the project on time, despite any unforeseen difficulties.
6. A Requirement of Some Funding Organizations:
To get qualified for certain types of funding, you may be required to have a performance bond in place. For instance, the Canada Mortgage and Housing Corporation (CMHC) requires a bond for all construction projects that they fund. Many government agencies also need a bond when it comes to public projects. It is always great to check with the relevant funding organization to see if it is required.
7. Safer than Insurance:
While insurance protects the contractor in case of accidental damage, a surety bond protects the owner in poor artistry. In other words, insurance covers builders for things beyond their control, while a bond covers them for something within their control. This makes it a more effective protection for the owner, as it ensures that the contractor will be held accountable for their work.
How to Get a Performance Bond?
There are multiple ways to get a bond, but the most common is to go through a surety company. These companies are liable for providing such bonds, and they will be able to help you determine if you need them and how much they will cost.
It is important to remember that not all contractors can obtain a bond. This is because the surety company will only provide a bond if they believe that the contractor can complete the job and are not at risk of defaulting on their obligations. A good one will have a strong track record and financial stability.
If you are interested in working with a particular contractor, but they cannot obtain a bond, you would like to consider working with another person. The lack of a bond may indicate that the contractor is not as reputable or reliable as you would like them to be.
Asking for a bond from your contractor is a simple way to protect yourself and your investment. You can relax knowing that you work with a reputable and trustworthy individual who will be held accountable for their work.
As you can view, there are numerous reasons why you should request a bond from your contractor. It is a small price to pay for peace of mind and financial security in most cases. So why take the risk? Make sure you ask your contractor for a bond before signing on the dotted line.