The Importance Of Performance And Payment Bonds
If a public works construction project goes over budget, it can mean many upset constituents and large sums of money to possibly repay. Public contracting can be very complex, because there are a lot of taxpayer dollars at risk. When contractors bid on these projects, most of the time they will need to take out a surety bond. There are two types of contract bonds that are necessary for this: performance and payment bonds.
As Clearwater construction lawyers, we know that construction bonds can be tricky, so we will begin by going over what a contract bond is. When a government on the federal, state, or municipal level wants to build a civilian project, the government typically hires an outside construction company. Once the construction company is picked, they will receive a public contract for the job, also known as a legal agreement to construct or repair a structure or a road with public money. Because these can be high stakes for the government, the public agency that awards the construction company the contract will require a bond before any work can be done. These bonds are needed to protect the public and its money from any wrongdoing. One thing to note is that the price of the performance and payment bond can be listed as part of your proposal, so in effect, you won’t pay for them.
Payment bonds are easy to remember, because they cover payments. A payment bond is set in place to make certain that everyone involved with the project gets paid the wages they were promised. When it comes to acquiring a payment bond, it will be taken out for the full amount, to guarantee that the contractor will pay their subcontractors, suppliers, and other laborers.
Payment bonds are around to make sure that all the workers get paid, but the job still needs to get done. A performance bond is taken out to ensure that the contractor will finish the job in accordance to the contract. If the contractor is unable to finish the project, for whatever reason, a claim can be filed against them.
Disclaimer: The information contained in this article is for general educational information only. This information does not constitute legal advice, is not intended to constitute legal advice, nor should it be relied upon as legal advice for your specific factual pattern or situation.