A surety bond is a common tool used in construction contracts to help protect the interests of construction companies and others involved in the project(s). When a construction company hires a subcontractor to complete a certain task, they may also require a surety bond to be in place. This way, if the subcontractor does not complete their obligations as laid out in the contract, the construction company can file a surety bond claim. If successful in their claim, the construction company can recover the amount of money that was provided on the surety bond.
This will help to protect the company against losses caused by a party that is outside of their scope of control. While most contracts are completed successfully, it is important to understand what a surety bond claim is and how it works.
Making a Claim
If a construction company finds that the principal on the bond has not fulfilled the obligations that are listed in the contract and the bond itself, then it will be necessary to make a claim against the bond. Depending on the details of the bond and what type of work was supposed to be done, it may be necessary to prove to the surety bond company that the obligations were not met. If there is a dispute on this matter, it can be necessary to take the issue to court.
Potential for Partial Payment
When filing a surety bond claim, it is important to be aware that you may not always get full payment for the amount of the bond. If it is determined that 50% of the work was completed successfully, for example, you may receive 50% of the bond payment. The amount that is paid out will be determined by a number of factors in addition to just how much work is done.
Types of Surety Bonds
When hiring a contractor or other party to complete tasks, it is important to be aware of the different types of surety bonds available. The most common options are performance bonds and payment bonds, both of which can apply to a given job. The performance bond is more common for construction companies as it is used to guarantee that work is done, and done properly. A payment bond, on the other hand, is a guarantee that a party will pay for the services once they are completed. In both cases, the purpose of these bonds is to mitigate the risks of common events in construction projects. Our earlier blog explains more about the differences here.
Getting a Custom Surety Bond
A surety bond is a type of contract that will involve your company, the other party, and the surety bond company. While some surety bond companies offer fairly generic contracts for these bonds, it is better and safer to make sure that the contract is customized to your needs. Contact FCLG to have the details of the bond written up by an attorney who is experienced in all areas of construction law.