In the construction industry it is necessary not only to have insurance but you will also need to have certain bonds in place to do business. One of these types of bonds that you should have is a performance bond. Regulations like this have existed for years so no one gives much thought as to why we have them in the first place. If you are trying to get a performance bond and are having trouble you may be wondering why you need a performance bond in the first place. Let’s have a look at why they really are necessary.
What is a Performance Bond?
A performance bond is an instrument to ensure that everyone on a construction project has financial and legal protection. If you have been in the industry awhile then you have probably heard of one or more cases of a construction company taking the money and not completing the job required. Performance bonds protect against just such a case.
The bond allows you to guarantee to the project owner that you will in fact complete the job that has been negotiation. The performance bond holds you accountable and should the unthinkable happen and you can’t complete the project then the surety company will step in. The surety company will either hire another contractor to complete the work or compensate the project owner for their losses. On occasion the surety company will act as an intermediary to make sure that deadlines and milestones of the project are being met. Here is a closer look at how they came to be.
Is a Bond Really Necessary?
The short answer is yes. The much longer answer is that there are local, state and federal laws in place that make performance bonds necessary to do any work on public projects. Bear in mind you will also need to get payment and bid bonds as well. When it is taxpayer money on the line then it is even more important to hold the contractor accountable in getting the project done and that there aren’t endless delays and cost overruns. Today even construction projects involving private ownership will want the security and protection that comes with a performance bond. Put yourself in the customer’s shoes they want every guarantee possible that the project will get done. Not only that, there will be banks and lending institutions that will require them.
Don’t view a performance bond as a necessary evil but rather an investment in your business. It shows your clients that you are a serious player and you stand by your word to get their projects done.