Depending on where your construction business sets up shop, the industry can be boom or bust. Some parts of the country are seeing exponential growth in terms of population and commerce, so new buildings and maintenance of those buildings need to be done. Cities like Phoenix, Houston, Raleigh and Portland are on the rise and contractors are finding opportunity left and right. But there are some parts of the country that are on somewhat of a hold or downward slide in terms of construction.
Either way, construction proves to be a risky business to be in. Everything from an economic downturn to international trade and tariffs (i.e. steel) to equipment problems could put a hindrance on any construction company. With all this in mind, it’s important for construction project owners to take a proactive approach to ensuring integrity: look into surety bonds.
What is a Surety Bond?
Surety bonds provide financial security and assurance on building and construction projects by letting the project owners know the contractors involved will perform the work and pay their subcontractors and all those involved. This is a risk transfer mechanism where all parties involved build a trusting relationship and everything is transparent.
It’s a three-party system involving a surety, an owner, and a contractor with the bid, performance and payment bond.
Types of Bonds
- Bid Bond: Provides financial assurance that the bid has been pushed through and that the contractor, in good faith, will enter into the contract at the price bid.
- Performance Bond: This protects the owner from financial loss is the contractor fails to perform the contract in accordance with terms and conditions.
- Payment Bond: This guarantees that the contractor will pay certain subcontractors, laborers and suppliers.
Surety bonds are mandated by law on public works projects. But privately-owned construction projects are at the owner’s discretion. There is an increasing number of private owners who are now requiring surety bonds from their contractors. The owner can take heart with a surety bond that a risk transfer mechanism is set. The overall financial risk is shifted from owner to surety.
This brings us to why exactly surety bonds are important for contractors. Construction sites are no strangers to contractor error and failure. Construction firms have a high ability to fail, in part due to contractors. Surety bonds ensure that the construction company is safe against contractors and can provide financial loss against the failings of the contractor(s). On big projects, surety bonds are a wise investment which protect the owner of a project against contractors.
An independent contractors liability insurance policy covers a wide range of protections and risks. You can get a policy that includes a general liability policy and workers’ compensation insurance. This will help to reduce the headache of dealing with multiple carriers and contacts to make policy purchases.
General contractors, contractors and subcontractors are required to carry this kind of insurance by the various laws and businesses they work for. From carpenters to landscaper to painters, liability policies provide the right protection. This kind of policy is usually bundled with a variety of other coverages.
No matter the combination, it’s important to be diligent about the responsibilities of being a contractor in terms of the full project’s responsibilities.
About Shields Insurance Agency
Shields Insurance Agency is an independent insurance agency located in Birmingham, Alabama that provides insurance coverage to local businesses and families throughout the southeastern United States. As an independent agency, we will shop your coverage with numerous top-rated insurers, virtually guaranteeing you get the most competitive rates available with broad coverage terms. For more information on our products and services, contact us today at (205) – 783-5893 to speak with one of our professionals.Posted on