Surety Companies And Your Project

2007-05-15 06:10:46

( Financial )



A NEED FOR ASSURANCE

There are several instances in the past wherein in the middle of the construction, the contractors defaulted and the project was stopped. It would be very unacceptable for project owners no matter the size of the project if it would be delayed because of a contractor’s unexpected quitting.

Though expensive and will increase the burden of project owners, surety bonding is a very important assurance document to guarantee a continuous work up to the last detail of the building. Without a surety bond, a project will be left in a risky situation if ever the contractor defaults.

SURETY BOND INCREASES THE BIDDING PRICE

The main reason why there are many projects with no surety bond is that it increases the project cost. If everything goes according to plan, there is no need to buy any insurance at all. But gambling is a risky move to do especially for a big time project.

Prices vary depending on the three main points: the state where the project is being done, the size of the project and the specific pricing model of surety companies. Although most surety companies are trying to maintain a low price, most of the time, the cost of a surety bond is still expensive.

AN AGREEMENT WRITTEN ON PAPER

A surety bond is a document which bonds the three bodies namely the project owner, the contractor and the surety company. If ever contractors withdraw from the project, for instance, due to exhausted budget, surety companies must find a way so that the project will continue by letting the contractor finish the project or hiring another construction firm.

Included in the bond is a written guarantee that the contractor will finance all the project costs and will finish the project on a set date. Also, the contractor must follow other specific obligations agreed upon by the project owner and the contractor.

Although a surety bond is intended for project owners, it is also used to protect the rights of a contractor. The project owner must also follow any agreement included in the bond which will protect and benefit the contractor.


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