Performance Bond 101 – What You Need To Know
Despite what you may think, a performance bond is NOT an investment instrument that you buy and enjoy interest payments from. Rather, it is a guarantee being used in the construction to ensure that projects are completed according to the terms of the contract between the project owner and contractor.
A performance bond or guarantee bond is not only being used in the construction industry. In commodities trading, a buying contract between buyers and sellers is usually covered by a performance bond. Guarantee bonds do not stand alone, especially in construction. It is paired with a payment bond.
Guarantee bonds are provided by third parties like this on www.bilisimpolisi.com, much like how insurance is provided by third-party insurers. If you have a construction project that you would like to bid on, the first thing you need to do is to find a bond provider. There are many of them that you can find out there and all you need to do is do a quick search on Google.
Can you do away with a guarantee bond, or can you bid on a project and not present it with your bid? The answer is NO. All construction projects worth over $100,000 need to be covered by that type of protection. It is legally required of public works projects and it is the standard in the private sector of construction.
But as we said before, there are many providers you can choose from. And while you may worry about how much it would cost you, you always have choices. Just make sure to get a quote from at least three guarantee bonds providers to get the best price.
How is the price determined? There are several factors that are taken into consideration, including the cost of the project and the risk involved. Risk often refers to the perceived ability or inability of the contractor to complete the project being covered. If you want to get specific prices, make sure to get a quote from at least three bond companies.
We mentioned earlier that a performance bond is always paired with a payment bond. While the former is paid for by the contractor and pays out to the project owner in case the contractor does not deliver, the latter, the payment bond, is paid for by the project owner to reassure workers that they will get paid no matter what happens.
As we said before, there are many, many types of performance bonds to reflect the nuances in public works as well as that of the private construction industry. However, a feature that is common to all of them is this: They guarantee payments in case a construction goes down under and is unable to complete a project in accordance with the terms of the contract.
If your company has a low credit score, you will definitely find a bond company that offers bond products that are blind to the credit score of the company buying the surety bond.