A surety bond guarantees that a contractor will perform any construction project that they take on according to the terms of the contract they enter into. The work performed should be completed on time and at the agreed-upon price. Surety bonds also allow for competitive bidding and this ensures that options are available for those requiring a contractor’s services. Bonds are provided to those who are able to demonstrate to the surety company’s satisfaction that they’re qualified to do the work.
As a contractor in the state of new Jersey, your ability to obtain surety bonds depends mainly on your past and current ability to manage the financial side of projects. Your staff’s ability to implement this management process affects your success rate, which is why it’s important to hire and train staff that competently serves as project managers.
How the bond process works
An essential element of the bonding process is the execution of a plan. In addition to having a solid history of successful projects you also must show your surety underwriter your plans for the project. This includes you having incorporated disaster planning into the plan. For example, are you prepared for any number of things that could go wrong? The loss of a worker, bad weather conditions, or other events that could cause unexpected delays. By planning for any and all contingencies you’ll be able to show that the work will continue and be completed, even in a worst-case scenario.
These bonds help to protect the client if the contractor is unable, for whatever reason, to finish the task. Because the job was awarded to a bonded, prequalified contractor, the client benefits by knowing that the surety bond company trusts and believes that the contractor is qualified to get the job done.
If the contractor experiences trouble that jeopardizes the project, the surety bond company will provide the necessary funds to see that the project is completed under the terms of the contract, including:
- Economic recession
- A worker strike
- Material shortages
- Equipment problems, or
- Bad weather conditions
Should the contractor fail to perform, any claim would still be paid. This is why having the assurance that surety bonds provide means having the knowledge that the task at hand will be completed in a timely manner.