As the owner of a construction firm, you want to secure as much work as possible. While there are a variety of ways to land clients, you may want to consider purchasing surety bonds. These bonds appeal to prospective clients, as they minimize construction-related disputes. They are often good for contractors too, as they may provide a ready means for building credit.
Because each construction project is unique, you must carefully consider the nature of your job when purchasing surety bonds. You must also understand what each type of bond accomplishes. While there are many types of surety bonds, three are common in construction:
- Bid bonds
Construction clients may receive many bids from contractors, including both high and low outliers. If your bids regularly undercut the competition, your clients may not believe they are legitimate. With a bid bond, you demonstrate the good-faith nature of your estimate. That is, you provide some guarantee to your clients that you have the ability to do the job in accordance with the bid’s terms.
- Performance bonds
When individuals or businesses hire contractors to do a job, they want the contractor to complete the project. That, of course, does not always happen. To ensure you do not skip out on the project, you may provide a performance bond. This type of bond guarantees the completion of the job. If you fail to finish the project, the bond gives your client the financial means to hire someone else. It also helps defray the cost of changing contractors.
- Payment bonds
Your prospective clients probably want to work with a contractor who is financially solvent. If you do not pay your workers, your clients may worry they may walk off the job. With a payment bond, you guarantee you will provide compensation to your employees, contractors and subcontractors. While you may think your payroll and accounts payable are your own business, offering additional payment assurance to your clients and taking a few other steps may help you win lucrative contracts.