Basics and advantages of performance bond

1. Basics and advantages of performance bond

2. To get good public and government projects a contractor needs to buy surety bonds. The reason behind buying surety bond is that they form a reliable documentation in terms of security, which will give assurance to the project owner that the contract is worth to be trusted.

3. Basically contractor bonds are of four types: -bid bond -construction bond -performance bond -and payment bond Although all bonds which comes under construction bonds are equally important and hence need to be purchased, but today we will focus on performance bonds how performance bonds work and how much they are important for the construction company.

4. Benefits of performance bonds Basically the term performance bond means a form of guarantee that the project will be completed under the given guidelines and hence will give the satisfactory results. There are many benefits of having a performance bond.

5. Start responding from the first dollar Under performance bond the owner does not need to worry about the co-payments. This is because performance bond are meant to provide whole protection from the beginning of the loss that is from the vary fist dollar of loss.

6. Ready to fix all sorts of compensation created by default In performance bonds a letter of credit is given to the project owner in order to fix all sorts of problems that occur by default from the contractor. With the help of this the project owner can complete his project in accordance with the terms and conditions that are mentioned in the original contract.

7. Provide enough protection Performance bonds provide enough protection to the project owner. If the contractor fails to complete the project then the project owner will able to get the claim which is nearly equal to 40 % of contract price. With the help of this he can find another well qualified contractor who will be able to complete the remaining project.

8. General myths about performance bond Most of the time there is a misconception about the functioning of the performance bonds like. -It is a source of getting quick cash which is not true; it does not provide cash on demand. The main function of performance bond is to provide the claim to the project owner if needed after the completion of the project.

9. A performance bond is not meant to resolve the issues that arise between the project owner and the contractor at the time of construction. It is only helpful for the project owner in terms of financial losses, if the contractor is found to default in order to follow the contractor guidelines to complete the project. Therefore make it clear that personal disputes are not entertained under the performance bonds.

10. Performance bond is not a magic lamp which will solve any sort of problem. During construction sometimes issues arises because of the complex situation of the project or environment. In such conditions a project owner should understand the situation and let the contractor do his job.

11. Under which condition can one claim for performance bond • Generally there are three main conditions under which one can claim for performance bond. • The project owner (obligee) must provide in writing that the contractor (principle) is in default as per the rules and guidelines of the contract. • No false allegation should be place. The contractor should actually find default as per the contractor guidelines.

12. The entire obligation should be followed under the guidelines of the contract by the project owner. • If all there conditions are satisfied, one can easily claim for performance bond.