Construction Bonds

What are they for?https://www.TexasEasyLien.com/

What is construction bond?Construction bonds are also termed as contract bonds and can be considered as a promise to fulfill the obligation of payment according to the terms of a contract. They are a form of financial guarantee that the bills coming out of a construction project will get paid.

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How does a construction bond work?

Construction bonds, also known as surety bond, are required for most public works construction projects. A contractor bidding for a public construction job is generally required to submit a contract bond or construction bond to be able to get a government contract. Very large private/commercial construction jobs sometimes require bonds in their proposals also.

The construction bond offers an assurance to the project owner that the general contractor will be completing the work to the conditions stated in the agreement. Construction bonds may come in two parts on larger projects: the first one to protect against overall job incompletion, and the other to protect against nonpayment of materials and labor from suppliers and subcontractors.

Key Points

Parties involved in a construction bond

1 The investor/project owners, also known as the obligee.

2The general or prime contractor in charge of building the project.

3 The surety company that backs the project.

The project owner or the investor is generally a government agency that hires a general contractor to perform a construction job. To lessen the chances of financial loss, the project owner requires all bidding general contractors to secure a bond for that specific project.

By submitting a construction bond for that project, the general contractors promise they will be completing the job according to the contract. Also the general contractors agree that not only they will be providing financial and quality assurance to the project owner, but also the project will be carried out to the highest quality specified in the agreement. The contractor purchases a construction bond from a surety which runs extensive background and financial checks on the contractor before approving a bond.

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Requirements of the Construction Bond

The companies who get construction bonds are subject to the following:●Review of the contract requirements to see if a

construction or contract bond is needed.●Getting a bid bond from the surety agent and submitting

it with the proposal.● If awarded a contract, approaching the agent for a

performance bond.●Completing the job.●Getting a maintenance bond, if required, once the job is

completed to do any repairs.●Most government jobs require the use of a construction

bond. However, there are some lines of work that don't qualify for construction bonds from American companies even when the job may be posted by the government.

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