On a nutshell, there are three types of contractor’s bonds when associated with construction project. These include performance bond, payment bond and licensing bond.
This is defined as the tool to provide an assurance financially that a certain project is going to be finished as based with the satisfaction of the owner. This is notwithstanding the actual circumstances of the contractor. An example, if the contractor is not able to finish the job that is contractually obligated, the underwriter who have the performance bond is going to release the payments to the new contractor so as to complete the task. This type of bond is mostly used for real property construction and development. This is where the owner of the property or investor of the project may need or ask for the developer to make sure that the project managers will procure the bonds so as to guarantee that the work value will not be lost. This is in case of insolvency of the contractor.
This is used during some instances when the project already runs out of cash. In essence, the underwriter will be required to pay the contractor and its subcontractor for the completed work. The said bond will be the guarantee that the contractor would pay for the fees that are owned for the used materials and labors to make the project. Once the payment bond is not acquired and for instance the subcontractor expenses were not paid off, the owner who paid the contractor may be asked for the liens of the workers that are filed against the finished project. If such case happens, the owner may end up paying twice or even greater than the actual value of the finished work.
For most states, the contractors are asked to have a bond. This is so as to get the license of the contractor. A smart consumer must always verify the status of the contractor’s bond right before hiring one. Typically, such bonds pay for the property damage caused by the construction as well as the stolen materials from the site. In case such bonds are triggered the contractor will be urged to repay the bonding company for the payout amount. The usual thing is for the contractor to enable the bond to lapse that often resulted to a bad effect for their licensing position. Read more at http://ezinearticles.com/?A-Quick-Guide-to-License-Bonds&id=6838823
The bonds serve as the tool to give financial security for a construction project in terms of unlikely events. There are many companies offering such assistance and their website can easily be found online. The unlikely events that may happen include job abandonment by the contractor, the contractor flees the state or if he or she failed to finish the obligations required, there will be a proper bond that can be able to cover for such to the amount of bonding.