Entering what is becoming a very financially unsure period many types of businesses including the construction industry, you may find clients asking for surety bond insurance, even for smaller projects.
Contractors surety bond insurance is now required by many more project owners than ever before - why the change?
It is time to explore the reasons that may necessitate a need to talk with an agency that provides bonds insurance to satisfy client needs so a contracting firm can actually get the job.
What Is A Contractor Surety Bond?
Contractor surety bond insurance is a type of business insurance specifically for contracting companies and their construction project owner clients.
The main purpose of this business insurance is to protect the project itself and make sure that it is completed according to the client-contractor agreement.
Whereas contractor liability insurance and general business insurance cover risks that a company may suffer during the completion of a project, bonding ensures that external issues like materials shortages, equipment, or labor issues do not prevent the completion of the project according to the agreement with a client.
Surety bonds essentially protect the project owner’s investment when there is a possibility that a contractor could back out on them for a variety of reasons.
If that happens, the bond pays the project owner for the loss.
Why Are Project Owners Now Asking for Surety Bonds?
Until recently, the majority of construction companies buying surety bonds from an agency that provides bonds insurance have been those working on larger projects costing millions of dollars and more.
Now agencies are selling more bonds to contracting firms for smaller projects worth $100,000 or less.
Based on how these bonds protect project owner risk and current trends in the construction industry, there are three main reasons why a company may be asked for contractors surety bond insurance, even for smaller projects.
Financial Uncertainty
Right now, many businesses including construction firms are dealing with financial and other issues due to how the COVID-19 pandemic has affected them.
With many materials in short supply, businesses being pinched financially due to lack of work, shortages of trained labor, and other factors affecting the construction industry right now, the risk of smaller contracting businesses abandoning projects is extremely high.
Surety bond agencies are finding that while this represents a large percentage of the reason so many bonds for smaller projects are now being required, it also puts more weight on the second two reasons why more bonds are being required by project owners.
No History with Project Owner
Working with a new project owner, a construction company has yet to build a good client-contractor relationship with them and face it, owners are more trusting once that relationship has been formed.
The financial climate adds even more risk to the dealings with owners requiring the protection of bonding even when working with contractors they have used in the past.
Subcontracting
When contractors subcontract work out to others, this also increases the risk of the project not being complete which is particularly true if the work being performed by the subcontractor is critical to the completion of the overall project.
Are Your Construction Project Owners Asking for Bonds?
Chances are, the owners of the project you are working with are starting to require the protection of contractors surety bonds insurance from all the firms they work with.
Because these bonds can be complicated and involve three different parties, it is important to choose an experienced insurance provider to work with.
A knowledgeable bonds insurance agency can help satisfy your client’s requirements for protective bonding!
