Construction bonds have been around for years and are mostly associated with large projects and undertakings. Many small home renovation contractors never consider bonds and this can keep them from successfully bidding bigger projects where bonds are very crucial. It is important to understand that there are various kinds of construction bonds available and while large construction establishments often have all of them, small businesses may need one or two. However, do they really need to have a construction bond to operate?
Construction companies are required to have a construction bond to legally operate within their area. Different states have different legislation and requirements, but all will need bonds. A construction bond, also referred to as a construction surety bond, is a type of surety that guarantees your work to the owner. As aforesaid, there are different bonds available including;
- Bid bonds – these are paid to bonding companies to give you an edge to bid on bonded jobs. The bonding company will pay performance and payment bond if you are awarded the contact.
- Performance bond – this surety guarantees your work to the owner and the stipulations for performance quality are in the contract.
- Payment bonds – this bond guarantees that you will release payment to laborers, suppliers and sub-contractors.
- Maintenance bonds – you guarantee that you will offer post construction services as stipulated in the contract
- Supply bonds – these bonds ensure the supplier holds their end of the bargain by delivering supplies as agreed.
If you are a small business dealing with renovations and small tasks, bonds may not seem all that important as most customers will be fine with quality guarantees and provisions to redo the task if initial attempts do not meet the agreed quality standards. However, this limits you from undertaking major renovation assignments. What’s more some owners simply won’t contract you without bonds.
Why you may need a bond
Bonds expand your available projects and make it possible to undertake various projects. A sample construction bond is $500,000-over-$1,000,000 bond lone. This means you can only take on projects up to $500,000. The $1,000,000 cap gives you a chance to take on two projects $500,000 each or four projects worth $250,000…. You can now see that bonds are very important for construction businesses especially if you hope to expand and serve a bigger market. They do not only improve your surety relationship, but also market you as a reliable construction business that can undertake a task to its completion.
When owners find out you have construction bonds, their fears are immediately scattered and they begin to trust you more. They can even recommend you to other clients once the construction is completed. Small renovation businesses can still handle assignments on high-end homes that cost millions of money so it is important to have construction bonds if you want to get such opportunities.