Contract Bonds: Protecting the Contract

2007-03-08 10:33:40

( Legal )



Contract bonds are meant to protect or guarantee that the provisions of a specific contract will be followed.

The most common type of contract bonds are the ones taken by construction companies to ensure that they have the means to pay all the labor the materials needed by the construction project. By getting contract bonds, there is protection from untoward project delays and complications which may arise from funding problems.

BID AND CONTRACT BONDS

Contract bonds are similar to bid bonds in the sense that both protect the owners in case the other party defaults on the contract or fails to hold up their part of the bargain. Bid bonds are forms of deposit that a bidder gives the owner to earn the right to participate in a bidding or auction. In case you do not win, the bid bond will be refunded to you. However if you win, the bid bond will then be credited towards the total price of the item you won. If, after winning, you decide not get the item after all, the bid bond will be forfeited in favor of the owner.

Bid bonds and contract bonds both operate under the same principle. Their only difference is in the circumstances that surround each type of bond, with contract bonds a bit more complicated. Contract bonds are also called letters of guarantee and are issued by a third party like a bank, surety company, or an insurance company. Usually the value of contracts bonds depend on the value of the project being insured, and how long will the contract bonds last.

Contract bonds can be very expensive especially if you are fairly new in the construction business. Contract bonds can be greatly affected by your relationship with the issuing institution. As such, make sure to obtain contract bonds from a bank where you have a good relationship with.


All rights Reserved © Tradenet Services srl
Do not duplicate or redistribute in any form.