Why do contractors need to be bonded?
Contractors are required to be bonded under certain circumstances. It is always better to just be safe than sorry since this protects the contractor, owner, and subcontractor. When a project starts with several contractors involved, there may be some confusion on who does what and how much money is owed at the end of the project.
If you don’t have an agreement drawn up by all parties involved, it could create some unhappy people down the road if things aren’t made clear enough in your contract. This can lead them to take legal action regarding payment agreements or damages that were done during construction projects where you hired more than one contractor to do specific tasks.
What are the benefits of getting bonded as a contractor?
Being bonded as a contractor is vital for many reasons. It provides financial protection to your employees, sub-contractors, and customers who rely on you to complete an agreed task or work which has been paid upfront.
Without this protection, not only do you stand the chance of losing everything, including your reputation, but also any trust others have placed in you. This can be devastating if it happens too often, so you need to consider the benefits of getting bonded as a contractor below:
- Protection for Employees
- Protection for Sub-Contractors
- Protection for Suppliers
- Protection for Contractors
The nature of some contracts may be risky, particularly if the contract is for sub-contractors that you aren’t familiar with. Some of them can turn out to be ‘cowboy’ outfits who don’t pay their bills on time or decide to skip town after receiving your payment. Although this protects them, it doesn’t protect you as the contractor who has lost everything without receiving any money in return.
Is a contractor bond a must-have?
A construction license bond may be called an “indemnity agreement,” “performance and payment bond”, or other similar terms. These bonds provide protection to homeowners if you fail to complete the project as contracted or if you do substandard work. If you leave town, don’t pay your subcontractors and suppliers immediately, and they sue you and win, homeowner’s association dues will help cover these claims. These fees can be substantial and erode building budgets for all homeowners.
Contractor license bonds protect your business name, trade name, address, etc., in addition to protecting homeowner’s association dues. For larger construction projects, many general contractors purchase a contractor license bond to cover the project for damage caused by work done. They may also purchase a commercial surety bond and other types of insurance to protect their firm and customers from financial loss.
What happens if a contractor is not bonded?
Contractors are required to be bonded in order to protect consumers from financial damages resulting from faulty or defective work. Without bonding, there would be no way for homeowners or business owners to recoup their losses when the project goes over budget due to poor craftsmanship.
If you were to hire a contractor without proof of bonding, your best option would be to immediately terminate the agreement and seek out another professional who will meet the requirements. If this sounds like too much trouble, it might be time to consider whether this relationship is worth saving at all since you’d still need someone else who can make up for your loss.
Is it legal to accept projects without a surety bond in place?
The purpose of the bonding company is to provide assurance of financial responsibility for the owner should your contractor default on the project or fail to complete the construction, which results in damage or loss of value due to that failure. When accepting a project without a surety bond being in place, you are asking your contractor to knowingly expose him/herself to potential damages through his/her actions with no protection whatsoever.
A contractor who takes this risk will do so because they feel they have superior knowledge and skills for completing work within a budget, maintaining schedules, executing quality work, and meeting all constructor’s warranties and if they feel that way, then you should too!
Another benefit to accepting a project without a surety bond is that it may help you get projects up and running faster. A contractor may be more inclined to want to take on your project because there is no bonding requirement which can sometimes delay the start of projects for days or even months while the owner waits for the bonding company to process their bonds (this time frame varies from state to state).