Performance and Payment Bonds in MA, CT, and NY
What is a Performance Bond?
A performance bond is a surety bond that is issued by a bonding company or bank to guarantee satisfactory completion of a project by a contractor. It protects the owner in case the contractor fails to complete the contractual obligations. If the obligations are not met, the surety company will step in and pay the claim. Afterwards, the surety company will seek reimbursement from the contractor.
Performance bonds are used to safeguard the owner, contractor and the people associated with the project (i.e. the public). The government or corporate entities often require performance bonds and payment bonds for any task where taxpayers’ investments need to be protected. In government projects, one submits an application for such projects as bridges and roads.
What is a Payment Bond?
People often confuse payment and performance bonds as the same kind of bond. Although payment bonds are required on construction projects along with performance bonds, they have different purposes.
Payment bonds are a guarantee that the contractor will pay all laborers, material suppliers, and contractors per contractual obligations.
Performance bonds are usually issued for 10% to 20% of the contract amount but may be fixed by local laws. Anyone can claim this bond but are subject to the condition that, who so ever is in the position to file a lien on a private project, may make a bond claim on a public project. Performance bonds can have any face value, but they are usually issued in an amount equal to 50% of the value of the construction contract.
If you need a performance bond, payment bond, or both a payment and performance bond, the premium stays the same. However, the cost can vary widely from company-to-company, but there are some general guidelines which suggest that the rate is 3% for all bonds that are $250,000 and less. For companies with a bad credit history, the bond rates would be higher as there is more work and risk involved to get a bond issued.
Performance and payment bonds should not be confused with an insurance policy. What makes them different is that in an insurance policy, the insurer has to defend the insured as well as cover them. More importantly, they are not able to get repaid from the insured for the amount of any loss or any costs associated with the claim. In comparison, a claim on a bond ensures that the surety company evaluates the case of the claim and the contractor to make sure that there is a valid claim and, more importantly, the surety will ask the contractor to reimburse it for any claim damages and lawsuit fees.
Before approving a payment or performance bond, the surety company ensures that they check the applicant’s character, history of contract performances, necessary equipment, financial strength, history of paying subcontractors and suppliers on time, bank relationships and an established line of credit.
To address all your concerns regarding bonds, Surety Bond Professionals, a performance and payment bond service provider agency, is your solution. We offer a quick and easy process for obtaining bonds, with the least amount of hassle.
Get your free quote today by using the request form on this page. If you have any questions, please contact us for help.