Whenever you enter a contract as the contractor, the contract owner expects you to take complete a task on their behalf. If you cannot complete your work, this means that you may cause financial loss to the contract owner. The contract’s owner may require you to repay debts for unfinished work.
A surety bond is one of the ways that contractors can meet the requirements to cover an debts related to unfinished work.
How a Bond Might Help a Contractor and Contract Owner
Like an insurance policy, a bond might provide funds for the lost or excess costs associated with a broken contract. If a contractor cannot complete their work, the employer could file a claim against the contractor’s bond. They bond may be able to help an employer avoid undue hardships because of a contractor’s inability to do their work.
By enrolling in a bond, the contractor can demonstrate to their employer that they essentially have backup. That is, the bond can provide assurances to contract owners that contractors are good for the money in case they have to repay a contract owner. The bond may serve as the reassurance the contract owner needs to award a contract to certain parties.
Enrolling in the Correct Bond
Most bond companies require the contractor who carries the bond to pay them back for the claim they issue. Therefore, contractors might still be on the line for funds even after carrying a bond. Even if contractors have surety bonds, they still stand to benefit from avoiding bond claims.
When enrolling in a surety bond, it is imperative that you follow a careful process to get the proper coverage. This may help you minimize your financial losses in case you have to reimburse a surety company for a claim.
· Ensure that you can honestly complete a contract’s stipulations. The more prepared you are to handle a contract, the better chance you have of seeing it to success.
· Finalize the contract. As a contractor, you may be able to change or negotiate certain aspects of the contract to better suit your needs. Make sure any changes have the approval of the contract owner. Have your legal counsel review the contract to ensure it has proper execution.
· Get a bond with proper stipulations for your project. Bonds often vary, and contract owners may require certain elements of coverage for their preferred bonds. Therefore, contractors must get a bond that satisfies the contract owner’s requirements and their own needs.
A bond will likely take effect immediately or shortly after contractors enroll in coverage. They should then provide the proper documentation to the client of the bond’s existence.
Do you need a bond? Call Berger Briggs Insurance at 505-247-0444 for a fast, free policy quote.