Basics and advantages of performance bond

Basics and advantages of
performance bond
 To get good public and government projects a
contractor needs to buy surety bonds. The reason
behind buying surety bond is that they form a
reliable documentation in terms of security, which
will give assurance to the project owner that the
contract is worth to be trusted.
Basically contractor bonds are of four types:
-bid bond
-construction bond
-performance bond
-and payment bond
Although all bonds which comes under construction
bonds are equally important and hence need to be
purchased, but today we will focus on performance
bonds how performance bonds work and how much
they are important for the construction company.
Benefits of performance bonds
Basically the term
performance
bond means a
form of guarantee
that the project
will be completed
under the given guidelines and hence will give the
satisfactory results. There are many benefits of
having a performance bond.
Start responding from the first dollar
 Under performance bond the owner does not need
to worry about the co-payments. This is because
performance bond are meant to provide whole
protection from the beginning of the loss that is
from the vary fist dollar of loss.
Ready to fix all sorts of compensation
created by default
 In performance bonds a letter of credit is given to
the project owner in order to fix all sorts of
problems that occur by default from the contractor.
With the help of this the project owner can
complete his project in accordance with the terms
and conditions that are mentioned in the original
contract.
Provide enough protection
 Performance bonds provide enough protection to
the project owner. If the contractor fails to
complete the project then the project owner will
able to get the claim which is nearly equal to 40 %
of contract price. With the help of this he can find
another well qualified contractor who will be able
to complete the remaining project.
General myths about performance
bond
 Most of the time there is a misconception about the
functioning of the performance bonds like.
 -It is a source of getting quick cash which is not
true; it does not provide cash on demand. The
main function of performance bond is to provide
the claim to the project owner if needed after the
completion of the project.
 A performance bond is not meant to resolve the
issues that arise between the project owner and the
contractor at the time of construction. It is only
helpful for the project owner in terms of financial
losses, if the contractor is found to default in order
to follow the contractor guidelines to complete the
project. Therefore make it clear that personal
disputes are not entertained under the
performance bonds.
 Performance bond is not a magic lamp which will
solve any sort of problem. During construction
sometimes issues arises because of the complex
situation of the project or environment. In such
conditions a project owner should understand the
situation and let the contractor do his job.
Under which condition can one claim for
performance bond
 Generally there are three main conditions under
which one can claim for performance bond.
 The project owner (obligee) must provide in
writing that the contractor (principle) is in default
as per the rules and guidelines of the contract.
 No false allegation should be place. The contractor
should actually find default as per the contractor
guidelines.
 The entire obligation should be followed under the
guidelines of the contract by the project owner.
 If all there conditions are satisfied, one can easily
claim for performance bond.

To get good public and government projects a contractor needs to buy surety bonds. The reason behind buying surety bond is that they form a reliable documentation in terms of security, which will give assurance to the project owner that the contract is worth to be trusted.

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