Surety Bonds for Construction

A legal contract which minimizes risk the risk of contract failure and guarantee all parties perform the tasks necessary to complete their project. Many construction projects involve large financial investments so a smart owner will require the construction company to post a  bond which has a third-party financial guarantor to assure the project is completed.

There are 3 parties involved in a surety bond:

Obligee:  The building owner

Principal: Construction Company who is purchasing the bond

Surety; The insurance company which is guarantying(insuring) the Principals works

The different types of Surety bonds are s follows:

Bid Bonds:  Guarantees that a contractor will enter into a contract, if awarded, and furnish contract bonds as required by the contract terms.

Performance Bonds: Provides protection to the Building owner if the contractor fails to finish the job in a satisfactory manner

Payment Bonds: This bond is put into place to make sure that a contractor pays his sub-contractors, employees, and material suppliers

Maintenance Bonds: acts as a warranty against faulty design, materials and shoddy workmanship

Obtaining a Surety Bond

A contractor who is applying for a surety bond will be subject to a rigorous background check. The Surety company will require extensive documentation and ask the contractor to provide:

Organization Chart

Business Plan

History of Past Projects Completed

Evidence of a Credit Line

Letters of Recommendation

Financial Statements which include Balance Sheet, Income Statement, Cash Flow Statement, etc.

Why are the Financial Statements so Important?

The surety company during the bonding process will be evaluating the Contractors financial ability to complete the project.   EWBiz Service is an expert in construction accounting and has the ability to streamline your financial systems.



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