The construction trade requires contractors of all types to take out bonds. These bonds work similar to insurance policies but with a few major differences. For example, the bond is purchased from a special agency that deals with bonds, and the tradesperson needs to pay for a portion of the bond up front. Should the bond need to be called in, due to issues with the work, an inability to meet deadlines, or any other reason, the bond holder will pay the amount of the bond, and then the tradesperson (or their company) reimburses the bond company.
Sounds simple enough, right? But what else do you need to know about trade-specific bonds? There are many different types. Here’s a quick breakdown.
Bid Bonds
When a contractor comes out and places a bid on a certain job, and the homeowner chooses to accept the bid, the contractor needs to take out a bid bond. This is kind of like a promise to the homeowner that the work will get done. In order to get a bid bond, the contractor needs to prove that they have the funds to pay for the supplies and any employees that they need in order to complete the job. Otherwise, the homeowner can call in the bond.
Performance Bonds
Contractors and homeowners sign contracts once the work and its amount are agreed upon. Should something go wrong during the construction process, such as the contractor disappearing, buying the incorrect supplies, or doing anything to violate the terms of that contract, their performance bond could be called in. These bonds are set up to protect the homeowner from contractors who claim they can do the work, take a down payment, and then vanish. The bond ensures that the contract will be carried out.
Payment Bonds
There are few things worse than having work done on your home, only to discover that the contractor didn’t pay for all of their supplies or still owes money to their employees. You, the homeowner, could end up in the middle of a lawsuit or worse. Thankfully, the contractor should have taken out a payment bond, which states their intentions of paying in full for everything on time.
Warranty Bonds
With everything that goes into getting home improvements done, it makes sense that a warranty bond would be needed. These bonds are taken out by the contractor and signify that the work will be done properly and without any issues. It also provides a warranty period once the work is complete. This can be anything from 30 days to several years, depending on the project. If something is found to be wrong with the work within the warranty period, the contractor will need to fix it, or else the homeowner can request the funds in the bond.
Have Questions? Contact Charlotte Insurance
Want to learn more about trade specific bonds? Contact Charlotte Insurance. Our agents can explore and explain all available options and put together the insurance coverage plan your business needs.