WHAT IS A SURETY BOND FOR CONSTRUCTION PROJECTS?

COUNT ON STOKES SURETY BONDS

contractor holding his bid documents for tender date

Brief

During the past few months, the construction industry in Texas has taken off. Construction companies can find more work than ever before. Business is booming. If you run a Texas construction firm, you need to be ready to take advantage of the growth. However, there is a good chance that you’ll need to jump through several hoops before you can begin serving Texans.

For instance, you’ll need to obtain surety bonds. Construction surety bonds are vitally important for consumers and corporations. If you’re new to surety bonds, you likely do not understand how they work. Don’t worry. Surety bonds aren’t too complicated once you’ve figured them out. Within this guide, you’re going to learn more about surety bonds for construction projects.  

TOO LONG; DIDN’T READ (TL;DR)

A surety bond for construction projects is an agreement that ensures that the contractor will complete the project as per its outlined terms and within the deadline given. Essentially, it is a security blanket for the obligee (the project owner), as it protects them financially if a contractor defaults.

WHAT IS A SURETY BOND?

Before you can gain an understanding of construction surety bonds, you need to learn more about surety bonds. What is a construction bond? Surety bonds help you make a promise. It might be debt, default, or failure, or something else.

The surety bond contains three parties. The surety company is the agency that issues the surety and backs your guarantees. As the principal, you’ll have to fulfill your responsibilities. When you acquire a surety bond, you’re promising that you’re going to complete a task. 

Surety bonds can be used for an array of things including paying off debts. Alternatively, they can be used for construction projects. When you obtain a bond, you let the client know that you’re going to live up to your end of the arrangement.

Just remember that there are various construction bonds to take advantage of. You’ll need to use bid, performance, and payment bonds to ensure that your clients are satisfied with the end results. If you’re going to run a construction company in Texas, you need to learn as much as possible about these bonds because you’ll be using them regularly.  

SURETY BOND FOR CONSTRUCTION RELATED PROJECTS

Construction companies will obtain and use a handful of bonds. Whether you’re purchasing a bid bond or performance bond, you’re acquiring a surety bond. This is something you have to understand. When you obtain one of these bonds, you’re giving your word that something will get done on time.

Construction surety bonds are bonds that are commonly used by investors in construction projects. These bonds can help protect the investor against financial loss and disruptions. The surety bond protects the client when the contractor is unable to complete a project or misses a deadline. 

As with all surety bonds, there are three parties. If you’re the principal, you will need to fulfill the obligations in your contract. Failing to do so could result in your client filing a claim against your bond. It is best to avoid such problems. 

CONSTRUCTION BOND TYPES

When it comes to the construction industry, there are various bonds to obtain. The most common include the bid bond and the performance bond. You may also be required to obtain payment bonds and other bonds.

As a construction company owner, you’ll need to purchase a bid bond when placing a bid on any project. This bond confirms that you’re going to accept the project if your bid is accepted. Furthermore, it guarantees that you’re willing to honor the bid that you placed. Once you’ve obtained a bid bond, the client knows that you’re not going to back out at the last minute. If you decide to do so, the client will be able to file a claim against the surety bond and seek compensation.




To learn more about bid bonds in detail, please take a look at the following links:


Meaning of Bid Bonds

Purpose of Bid Bonds

Bid Bonds in Construction

How Does a Bid Bond Work?



The performance bond gives the client a guarantee that you’re going to complete the project on time and as promised. It ensures that the client has a way to fight back should the contractor fail to complete the project.

Construction surety bonds are bonds that are commonly used by investors in construction projects. These bonds can help protect the investor against financial loss and disruptions. The surety bond protects the client when the contractor is unable to complete a project or misses a deadline. 

As with all surety bonds, there are three parties. If you’re the principal, you will need to fulfill the obligations in your contract. Failing to do so could result in your client filing a claim against your bond. It is best to avoid such problems.  

THE PARTIES

Since you’re dealing with surety bonds specifically designed for the construction industry, you’re dealing with three parties. As with all surety bonds, there will be a principal, obligee, and surety. If you’re running a construction company, you’ll be the principal. This means that you’re promising to perform work or fulfill the obligations put forth in the contract. As the principal, you will need to obtain surety bonds. You are required to do so before you can obtain work from clients in Texas.

The next party is the obligee. The obligee is the entity requiring you to get a bond. The obligee can be anyone but it is normally a client of yours. They want you to obtain the bond so they can protect their interest. The bond is designed to protect the obligee from the principal.

Finally, you have the surety. This is the insurance company that issues the surety bond. While they’ll make money along the way, the surety takes big risks. If a claim is filed against the bond, the surety may be held responsible too. Therefore, surety companies are not eager to work with risky companies. Stokes Surety Bonds can help you obtain surety bonds for your construction company.  

HOW TO OBTAIN SURETY BONDS FOR CONSTRUCTION?

Anyone who wants to run a successful construction business in Texas will need to obtain construction surety bonds . It would be difficult to obtain lucrative projects without bonds. With that being said, you should find out how to obtain bonds quickly and conveniently.



To learn more about this for different types of construction bonds in detail, please take a look at the following links:



  Obtaining Bid Bonds

  Turnaround Time for Bid Bonds

  Obtaining Performance Bonds



The biggest and most important step is finding a reliable surety. 

The surety company issues the bond for a fee. The cost of construction bonds will depend on a handful of factors. For instance, the company is going to analyze your firm’s history. It is important to note that things can be very different for contractors with no previous surety bonding history. If you’ve had several claims filed against your bonds, they’ll likely force you to pay more. 



To learn more about costs in detail for different types of construction bonds, please take a look at the following links:


•  Cost of Bid Bonds

•  Rates of Bid Bonds

Asking Price of Bid Bonds

•  Cost of Performance Bonds




Furthermore, the surety will want to learn more about the project, bond requirements, and your personal credit score. This information will prove to be very important since it’ll help the surety determine how risky insuring your company will be. Once you’ve given this information to the surety, they’ll tell you how much you’ll need to pay. After you’ve paid the fee, you will be given the surety bond. 

Just remember that you should never rush the process of choosing a surety company. It is pertinent to choose a reliable firm. Remember that Stokes Surety Bonds can point you in the right direction. 

REDUCING THE LIKELIHOOD OF BOND ISSUES

Finally, you should do your best to avoid problems associated with your surety bond. If you believe something is going to go awry, you need to contact your clients and tell them immediately. Make sure that you keep your client up to date since this can minimize the risk of problems.

Also, it is pertinent to do your best to keep the client satisfied. You’ll want to pay your suppliers on time to avoid potential issues. Furthermore, you should choose a surety company that is going to work hard for your firm. Do that and your business will thrive without issues. 

NEED A CONSTRUCTION SURETY BOND FOR A JOB? COUNT ON STOKES SURETY BONDS