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Why Do Contractors Need Contract Bonds?

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Why Do Contractors Need Contract Bonds?

Construction is a risky business. Looming economic downturns, labor difficulties, material shortages, equipment malfunctions and other issues can cause a contractor’s business to fail, leaving behind incomplete projects.

That’s why it’s important for project owners to protect their projects with contract bonds.

Contract or construction bonds are a type of surety bond used by investors in construction projects to protect against disruptions or financial loss should a contractor fail to complete the project or meet contractual obligations.

There are several types of construction bonds used to guarantee construction, including bid bonds, maintenance bonds, performance bonds and payment bonds. These bonds are often required by the government for public jobs, though private entities and general contractors bidding projects to sub-contractors can also require them.

When contractors vie for construction jobs, they are required to post contract bonds to assure the project owner they will perform according to the terms outlined in the contract.

On larger projects, construction bonds come in two parts – one to protect against job incompletion and another to protect against nonpayment of materials from suppliers or labor from subcontractors.

Three parties are involved in contract bonds – the investor/project owners, the licensed contractors building the project and the surety company backing the bond. With this bond, the risks of construction are shifted from the owner to the surety company. If the contractor defaults, the surety company may pay for a replacement contractor, finance the existing contractor or provide technical assistance.

At Glenn Insurance, contract bonds are our specialty! With more than a century of experience caring about South Jersey businesses and families, our experts can take care of all your bonding service needs.

To learn more about our bonding department, reach out to our specialists Kamini Patel and Kelly F. Smuzinsky.

For more information about Glenn Insurance bonds, visit www.GlennInsurance.com/personal-insurance/bonds.

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