If you’re running a construction business then there are some legal requirements you have to meet in order to run your business.  Just like any business you’re going to need insurance but unlike other businesses you will also need a contractor bond.  There are a number of different types of contractor bonds and which contractor bond do you need?  That will depend on the type of construction project you take on, whether you go after commercial or residential projects and if you ever want to bid on government projects in the future.

What is a contractor bond?

Before you run out to get a contractor bond let’s define what they are and why they are required.  Bonds are licenses that are required by the state so that a general contractor will conduct business under the rules and regulations that pertain to your business and the specific bonds involved.  Sounds confusing, right?  They actually aren’t.

What is the Purpose of a Bond?

A contractor bond exists to protect the public from unscrupulous practices or unlawful behavior from a contractor.  The bonds are there to guarantee the contractor will do his job at the price you agreed to in the contract.   They will also protect the consumer should something happen.   If anyone on the construction site or should any property be damaged then a bond payout may occur.  Should a bond payout happen because of negligence on your part then the surety company will come after you for damages including the amount of the payout and any legal expenses that may occur.  This is how bonds are different from insurance.

Picking the right bond

  • Provides assurance, especially in commercial construction that you will meet your obligations as they are outlined in the building contract
  • Protects your customers against any financial loss in the event that you don’t complete the project
  • Bonds are good for business, they encourage potential clients to work with you as you have demonstrated your seriousness about finishing the work for the price you quoted.
  • Suppliers will give you a better deal because they are comfortable with knowing that you have the ability to pay.
  • You can avoid disputes when it comes to contracts because the business owners are more comfortable with the terms.
  • The business owner hiring you knows that you have the financial resources to carry the costs that are associated with the construction industry.

Contractor Bonds aren’t without their disadvantages too.  For instance, claims against the bond, even those found to be invalid will affect your costs of future bonds.

You need to make sure that your business is bonded and you need to pick the right bond for the project.  Any project that requires bids will also outline which bonds will be required in order for you to even qualify to bid.

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