Construction projects are often expensive and require additional funding for completion. When a construction company has tapped out the number of loans that can be taken out, they often turn to bonds for extra support. Fortunately for these organizations, there are various types of construction bonds that are available in the marketplace. Constructions bonds act as a surety that bills on a particular project will be paid in full once the project has been finished. Also, the bond issuing entity ensures that a selected contractor will complete the project.
Understanding Performance Bonds
While there are different types of construction bonds, performance bonds are some of the most common in this industry. Performance bonds are appealing because they ensure that a designated deadline will complete a project. There are occasions where a contractor defaults on this agreement. When this occurs, the principal is responsible for finding another contractor or issuing payment to the owner so the project can be completed promptly.
Understanding Bid Bonds
Bid bonds are another type of construction bonds that are commonly issued by principals. Bid bonds assure project owners that the contractor will uphold the agreement to complete the designated project as outlined in the contract. If this does not occur, the project owner is permitted to sue the principal and surety for not upholding the agreement.