Construction Bonds in New York
Every construction job has a lot of moving parts, in the sense that it relies on a huge number of people with different skill sets. To ensure that all of these people carry out their duties properly and according to all applicable safety codes, construction bonds are usually required before a contractor or subcontractor can perform any work.
There are several different types of construction bonds, including bid, performance, and payment bonds. Today we’re going to talk about the difference between a performance and payment bond NY, talk about who needs these bonds, and discuss why you still need insurance even if you have a surety bond.
Everything You Need to Know About a Performance Bond in NY
One common type of construction bond is a performance bond. As a contractor, you’ll often be required to obtain a performance bond from a surety company, and this acts as a promise to the client (the obligee) that you’ll complete the project as per the terms of the contract. This includes completing all the work, finishing on time, and coming in on budget.
In a case where the contractor (the principal) doesn’t live up to those terms, then one of three things will typically happen:
- The client will use the bond payment money to complete the project
- The surety will take up the contract and complete the project
- The surety will find a new contractor to work with the client
In any event, the client is guaranteed that either the project will be completed by one contractor or another, or that they’ll receive money in compensation to get the work done on their own if the contractor falls through.
The Idea Behind a Payment Bond NY
Most performance bonds are actually performance and payment bonds, and the payment part of the bond is a guarantee that the contractor will take care of the material and labor costs that are incurred as part of the project. Payment bonds are advantageous to subcontractors and suppliers involved in the project, because it means they’ll still get paid no matter what, and this is beneficial to the client because it means work will continue, even if the contractor defaults.
For instance, say a contractor went bankrupt in the middle of a project. At that point, the surety would step in and work with the client to ensure that the terms of the performance bond were fulfilled. They would use the money from the bond to pay suppliers and subcontractors as part of the payment bond, thereby ensuring that work on the project continued, even without the original contractor.
Construction Bonds in NY: Not a Substitute for Insurance
Any type of surety bond, including a construction bond, is a guarantee that the principal will perform an obligation to the client, but it’s not the same thing as insurance. Even with a performance and payment bond in place, you still need contractor’s insurance. Insurance is a form of risk management that provides you with a measure of security if something goes wrong.
A surety, on the other hand, is a guarantee for the client in case there’s a problem, but it doesn’t provide you with any compensation or protect you in any way, and that’s why you can’t use a construction bond in place of insurance.
Construction is a competitive business, and having bonds will help you secure more work from clients who are always looking for the best and most responsible contractors. But bonds aren’t free, so if you are a contractor in New York, you should make sure you are getting the most competitive terms and largest programs. That way, you can bid on larger jobs and become more profitable.
Contact us today if you need a performance and payment bond in New York, or for all your contract bond NY needs.