Importance of Performance Bonds in Construction
According to the Global Construction Survey, the construction industry in Canada is expected to grow by 8.8% to reach $190,860 million in 2022. Hence, the growth will be steady in the coming years.
A performance bond construction work is essential to protect and safeguard the economic rights of the project owners. These bonds are also needed in the private sector and are not limited to public development works.
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Why Is Performance Bond Needed?
A performance bond in construction is required for timely project delivery from the principal or the contractor. The payment bond is issued for the construction projects along with performance bonds.
- For the Owners
A payment and performance bond offers the owner adequate protection against a contractor’s unplanned exit, contract default, or non-payment issues. A payment bond ensures that you are protected against the contractor’s non-payment of sub-trades.
An essential factor of signing a performance bond is that it ensures the completion of your project. As a project owner, you must request a performance bond from your contractor or the company that wins the bid. For example, if your contractor fails to deliver his work under any circumstance, the surety agent or company will bear your expenditure. Moreover, they even pay the penalty for any damages or unsatisfactory work done by the contractor and the company.
- For the Contractors
As per the Federal Miller Act, there is a performance bond requirement in construction projects and public works costing $100,00 and above.
Both a private developer and a general contractor require this surety bond to manage any risk related to the project. The details mentioned in the contract should be detailed and laid down distinctly. With a performance bond, you as a contractor have proof against wrongful allegations of inefficiency if the contract details are vague.
A performance surety bond has both its pros and cons. The entire reimbursement for any failure of the project work is solely meant for the owners. What other factors should you be aware of regarding this surety bond?
- Security: A performance bond secures you from any additional costs incurred due to a contractor’s exit. It also prevents the project owners from paying extra dollars for another contractor.
- Payment: As a contractor, you should seek help from the surety to complete projects. Look for bond types wherein the surety company can even finance the project if you have exhausted your funds.
- Right Surety Providers: It is vital to look for an efficient bond provider who can offer you reasonable rates and expert advice. Also, inquire about their claim support to be better informed in times of crisis.
Once you are ready to get the project rolling, wait no longer. Go ahead and sign up for the performance surety bonds to safeguard your investments and finances. Since construction project works involve unavoidable risks, a performance bond guarantees you financially to a large extent. Today, development and real estate projects have become more efficient and streamlined than ever with performance bonds in place.