There are many types of surety bonds used as protection in construction investments, and a construction bond is designed to cover financial losses that could occur. If you’re asking what is a construction bond, it an insurance policy that addresses project disruptions.
The Process of Securing a Bond
According to the experts at Daniels Insurance Inc, a contract must be established between a contractor and investor (whether homeowner or developer) prior to securing the bond. The contractor must agree to the terms of the contract and acknowledge that the work will be completed as outlined. Most government and public work projects require a contractor to have a construction bond, but this insurance is also commonly requested in home construction and commercial building projects.
Who Pays the Bill
The contractor pays a surety company to issue and back the bond. The bond amount can be determined by the project owner, with the intent to cover the costs of material and completion in the event of contractor default. Should the contractor fail to finish the work or perform the essential functions according to the contract, the surety company and the contractor are liable for the loss. In the end, the surety company issues financial reparations.
With a construction bond, the investor isn’t held responsible for all the bills of the project when problems arise with the contractor.