As a contractor, before you start any job how do you evaluate and manage risk on your construction projects? As the owner of the business you need to hire capable and manageable employees who you can entrust to get to work on time and get the job done. After all, your name and your business are on the line when things go wrong. It is up to you to ensure that your projects are completed on time, on budget, and to contract specifications. How do you ensure that contractors and subcontractors successfully meet their obligations?
One way is with bid, performance, and payment bonds, all three are types of surety bonds, as you should well know. Specifying surety bonds in Pennsylvania ensures capable and qualified contractors and subcontractors and protects you and your company from financial loss in the event of contractor failure. In this industry, things often do and will go wrong. Everything from equipment failure to weather delays can play a role in taking you off course in terms of meeting your completion deadline.
How do surety bonds work?
For those who don’t quite understand, the surety company and its financial resources stand behind the contractor, which enables the contractor to enter into a contract. You receive a bond from a financially responsible surety company licensed to transact surety. These bonds provide protection by screening out unqualified contractors.
Before any contractor can obtain a surety bond, they undergo a rigorous prequalification process, called underwriting, to determine whether they are capable of performing to the specifics of a given contract. When a surety underwrites performance and payment bonds, it stands behind the contractor’s promise to perform the work according to the contract’s terms and conditions, and pay certain subcontractors, laborers, and material suppliers. As in all states, the Pennsylvania surety bond is required of the contractor but its sole purpose is to protect the customer.