Sunday, February 22, 2015

The Need To Buy Surety Bond For Constructors In California

By Olivia Cross

A surety bond is the only way you are going to ensure that the project is completed should the contractor default. It is a contract between the principal (contractor) and the surety company to shield the obligee (project owner) from the losses that may occur as a result of the contractor's inability to deliver on project. The company is therefore obligated to find another contractor for the purpose of completing the project. As a contractor, you have many opportunities to buy surety bond for contractors in California.

However, before even buying one, it is important to be conversant with the types of bonds on offer. First, there is the bid that is solely concerned with the role of the bidder. It guarantees that the bidder will enter into the contract, make payments as required, and perform the entire set obligation. The payment contract on the other hands covers the suppliers and the sub-contractors ensuring they are paid their due.

The third category is the performance surety. It is there to guarantee that project terms are met, including delivery on time and as required by the terms of the contract. Lastly, there is the ancillary guarantee that focuses on the aspects of project that are integral but are unrelated to performance.

By law, it is requirements that the Federal projects that are of value above $150,000 can only be taken by contractors who have these bonds. The same applies to the tender projects given by other authorities like the local governments and municipal governments. The private developers also have the same requirements, particularly when the projects are of high value.

The situation is understandable given that no project developer is ready to gamble with their hard earned money. The public projects have to be completed on time, and this is a requirement by law. It is for this reason that the contractors with surety bonds tends to win more contracts and enjoy business expansion.

It has numerous benefits for the project developer and the constructor alike. As the developer, it assures you that the contractor has been subjected to a prequalification process and is deemed capable of performing as obligated. The contractor is very unlikely to default as the surety company will hold them individually liable. The project will be finished as scheduled even if the contractor defaults.

The contractors also stand to enjoy many benefits. First, they automatically increase their business opportunity as a result of this cover. In addition to this, they are likely to benefit from financial, technical, and managerial advice from the bond company. Lastly, the subcontractors do not need the mechanic's liens.

The rate can vary widely, in most cases; it rates from 0.5% to 2% of the total contract amount. However, the rates can vary depending on variables like the contract size, duration for completion, the contractor, and other factors. There are several companies that offer these bonds in California, with different rates. It is upon you to choose carefully and enjoy increased business opportunities.

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