Why is it necessary for contractors to be bonded?
Under certain cases, contractors are obliged to be bonded. It’s always better to be safe than sorry, as this safeguards the contractor, the owner, and the subcontractor. When a project involves numerous contractors, it’s easy to become confused about who does what and how much money is owed where in the end.
If you don’t have an agreement drawn up by all parties involved, you can end up with some disgruntled folks down the road if your contract isn’t explicit enough. This may lead to legal action in relation to payment arrangements or damages incurred during construction projects in which you contracted multiple contractors to complete certain jobs.
What are the advantages of becoming a contractor who is bonded?
Contractors must be bonded for a variety of reasons. It protects your employees, subcontractors, and customers who rely on you to accomplish a task or work for which you have been paid in advance. You risk losing everything, including your reputation and any faith others have placed in you, if you don’t have this protection. This might be disastrous if it happens frequently, so consider the following advantages of becoming bonded as a contractor:
- Employee Safety is Number One
- Subcontractors’ Protection
- Suppliers’ Protection
- Contractors’ Protection
Some contracts are dangerous because of their nature, especially if they involve subcontractors you are unfamiliar with. Some of them may turn out to be ‘cowboy’ outfits that fail to pay their bills on time or leave town after collecting your payment. Although this safeguards them, it does not safeguard you, the contractor, who has lost everything and received no compensation.
Is a contractor bond required?
An “indemnity agreement,” “performance and payment bond,” or other similar word may be used to describe a construction license bond. These bonds safeguard homeowners in the event that you fail to complete the job on time or provide inadequate work.
If you leave town without paying your subcontractors and suppliers, and they sue you and win, your homeowner’s association dues will assist pay for these claims. These fees can be enormous, eroding all homeowners’ construction budgets.
In addition to protecting homeowner’s association dues, a contractor license bond protects your business name, trade name, address, and other information. Many general contractors buy a contractor license bond for larger construction projects to protect the project from damage caused by the work. They may also buy a commercial surety bond and other types of insurance to protect their company and their clients from financial damage.
What happens if a contractor isn’t covered by a bond?
Contractors must be bonded in order to safeguard customers from financial losses caused by poor or substandard work. Without bonding, homeowners and business owners would have no method of recouping their costs if a project went over budget due to bad workmanship.
If you engage a contractor without proof of bonding, your best option is to terminate the contract immediately and find another professional who meets the standards. If this sounds like too much hassle, it’s time to rethink if this relationship is worth saving at all, because you’ll still need someone to compensate for your loss.
Is it legal to accept projects without first obtaining a surety bond?
The goal of the bonding company is to offer financial assurance to the owner in the event that your contractor defaults on the project or fails to complete the work, resulting in damage or loss of value.
When you accept a job without a surety bond, you’re asking your contractor to deliberately expose yourself or herself to potential damages through his or her acts with no recourse. A contractor who takes this risk does so because they believe they have superior knowledge and skills for finishing work on time, on budget, with high quality, and adhering to all constructor guarantees, and if they believe that, you should too!
Accepting a project without a surety bond has another advantage: it can help you get projects up and running faster. Because there is no bonding requirement, a contractor may be more eager to take on your project. Bonding can often cause projects to be delayed for days or even months while the owner waits for the bonding business to process their bonds (this time frame varies from state to state).