When a contractor is hired, there’s no guarantee that they are going to complete the job they have been contracted for to a satisfactory degree. Because of the risk businesses face when hiring contractors, performance bonds were introduced. A performance bond ensures that contractors have to complete projects properly. It is, in other words, a written guarantee that work will be performed according to the contract.

The use of performance bonds is most common in construction, though they are sometimes used in other industries, too.

This post will explore performance bonds in more detail, telling you some things you should know about them:

Bond Payment

The main thing most contractors want to know when they are dealing with performance bonds is who pays for the bond. Typically, the bond is paid for by the contractor. According to the experts on this site though, they also factor the bond into the cost of the project, which means that the person hiring the contractors indirectly pays for the bond.

If you are a contractor who’s bidding on a project, then it is very important to make sure that you factor the cost of the bond into your bid. If you do not, then you could end up paying for it. Performance bonds are not especially important, but contractors should still not be paying for them, since they are a guarantee that protects the person paying for the work, not the contractors.

Issuing Bonds

Another thing that you need to know is that performance bonds are issued by insurance companies. Therefore, you need to find a reliable insurance company to take out a bond with. The best way to find a reliable insurance company is to conduct extensive online research. Make sure that you read a company’s reviews before taking out a bond with them.

A company’s reviews should help you to get an idea of what it will be like to work with them. Make sure to compare different offers using comparison sites too, so that you can get the best deal. Comparison sites are free to use and very helpful.

Reduces Risk

Performance bonds take the risk out of construction work. Having one means that developers don’t have to worry about being scammed or having work left undone if the contractor decides that they have other more important things to do.

Developers invest a lot of money into building property (which performance bonds are most commonly issued for) so having some kind of protection in place is essential. Without these bonds, there would be no way for developers to protect themselves against untrustworthy and unscrupulous contractors.

Protects Developers

As mentioned in the previous section, performance bonds exist to protect developers from untrustworthy and unscrupulous contractors. If you are a developer, then it is absolutely essential that you take steps to ensure that the contractor you hire is qualified and knows what they are doing.

One of the best ways of telling whether or not a contractor’s worth working with is to read their reviews. A contractor’s reviews will give you an idea of how they treat their clients, and what the quality of their work is like. If contractors are not very reliable, then you will see this in their reviews.

Bond Length

The length of a performance bond is around 36 months. However, some bonds only last 12 months. The length of time that they last are really irrelevant though since most bonds are renewable. You will have to pay an extra charge if you are going to renew a bond.

Typically, bonds are renewed when work isn’t completed according to schedule, or when other things come up, getting in the way and making it impossible for the contractor to complete the job on time. If a bond needs to be renewed, then the contractor needs to get in touch with the bond’s issuer and ask for an extension. Some bonds are non-renewable, though.

Essential Investment

If you are a contractor, then a performance bond is an essential investment. It’ll help to make you seem a lot more trustworthy. Development companies will be much happier working with you if you make it clear from the very beginning that you intend on taking out a performance bond.

After all, cowboy builders with no intention of completing jobs according to the contract would not want to take out a performance bond, because it would mean that they would have to pay big if they didn’t complete the job properly (which cowboy builders rarely do).

Whether you are a developer or a contractor, performance bonds are important. They are commonplace in the construction industry today, because of the protection they offer. Performance bonds can be expensive but are an essential investment.