Construction projects require meticulous planning between multiple parties to bring a design from concept to completion. Construction bonds help establish parity between parties and decrease the likelihood of one party taking actions that have negative consequences on another party.
A Charlotte construction bond can help reaffirm the contractor’s obligations to perform their duties, or ensure payment after a project is completed. Acquiring a bond facilitates trust in your firm, since bonds act as a contractual obligation to fulfill the requirements of the bond, but they also help you establish a mutual respect and understanding between your firm and the entity purchasing your services.
Who is Involved in a Charlotte Contractor Surety Bond?
A contractor surety bond is a three-party agreement that helps protect each party from financial loss. The three parties included in a Charlotte contractor surety bond include:
- Principal: the one who needs bonding (i.e. contractor). The principal’s bond guarantees that all aspects of a project will be completed according to the agreed upon timelines.
- Obligee: the one who requires a bond (i.e. government entity). The obligee is responsible for providing payment once the principal has completed their task.
- Surety: the one who backs the bond financially. The surety ensures the principal will follow the terms established in the contract and fulfill all documented commitments.
Types of Construction Bonds
Construction bonds are most commonly used between government entities and contractors collaborating on federal contracts. Once a contractor has successfully bid on a federal contract, bonds are established to ensure project completion and payment. Some of the most commonly used construction bonds include:
- Bid Bonds: Bid bonds protect the obligee if the principal fails to honor the bid. Essentially, this bond locks the price in place so contractors can’t change their bid after being awarded a contract.
- Performance Bonds: This bond requires the principal to complete a project according to the terms of a contract. If a contractor fails to perform (i.e. poor workmanship, project abandonment) the surety backing the principal is accountable for providing the funds necessary to complete the project.
- Payment Bonds: Payment bonds establish a guarantee that the obligee will provide the principal with compensation in accordance with the contract. These bonds are required for any contract worth $100,000 or more. The strength of this bond lies in its ability to be filed against public property, unlike a mechanics’ lien.
Bonds are an integral part of the construction industry. If you firm plans to enter a contract with the government, a construction bond expert from Cotney Construction Law can guide you through the process of procuring a bond and fulfilling your contractual obligations.
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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.