Should You Get a Surety Bond?
Have ever heard of Boston’s Big Dig, the Denver International Airport, or the World Trade Center Transportation Hub? What do all these projects have in common? They are construction projects that went way over budget. Boston’s big dig went $13.4 billion dollars over budget. The Denver International Airport went $3.1 billion over budget. And the World Trade Center Transportation Hub went $2 billion over budget. Construction projects constantly either do not get finished or go over budget. So how does an individual or small business person protect themselves ? One way is to make sure that the construction company has a surety bond.
Let’s start with the basics of a surety bond. According to Wikipedia, “A surety bond is defined as a contract among at least three parties.” You also need to understand the difference between property & casualty Insurance vs. surety bonds. The best way to sum up the difference according to the Insurance Journal is “The largest difference between property /casualty insurance and surety bonds lies in what entity ultimately has to pay claims.”
Usually what happens is two people agree for a job to get done like a construction job. The individual may require the construction company to get a surety bond. This protects the person having the work done. It makes sure the promise made by the construction company to their customer is completed.
As a small construction company, Surety bonds are needed to level the playing field. Most smaller construction companies have limited capital. If they are delayed by bureaucracy, then that can make things worse. So, a company can purchase a surety bond at a fraction of the cost of the entire project and not go bankrupt. This allows smaller construction companies to be able to compete with the larger companies. You will want to obtain some surety bonds scottsdale az, if you want to compete in the hottest job market. Where there are lots of jobs, then you will see lots of construction business for sure.
A surety bond cost anywhere between 1 and 15 percent of the total bond amount. Construction bonds typically cost more. Surety bond rates are based on your Personal credit score. For example, if you need a $500,000 surety bond and you get quoted 10%, you will pay $50,000 for your surety bond. This can make growing your business more difficult.
Many states require certain licenses to have a bond. Some examples are mortgage bonds, Contractor License bonds, and private investigator bonds. These bonds insure that you will faithfully and ethically practice good business, or someone could make a claim against your bond.
Surety bonds help weed out bad contractors. Someone who is unable to secure a surety bond is not someone you would want to take on a multi-million project. Surety professionals investigate the financial strength of the company, their ability to perform and their reputation. This allows the surety professional to be confident in the contractor’s ability to finish the job.