Contractor’s bonds can be time consuming to draw up. You also have to know what types of contractor’s bonds you might need in regards to a particular project. They cost money too. The average cost of a surety bond, for example, falls between 1% and 15%, which means it could cost as much as $1,500 to a buy a $10,000 bond policy.
You aren’t alone if you’re wondering what types of contractor projects require bonds so that you can avoid them altogether, if appropriate. For example, it’s usually obvious that large projects require contractor bonds, but do smaller projects require bonds too?
Types of Contractor Projects That Require a Bond
There is not a simple answer to whether contractor’s bonds are only for large projects. The answer really does depend on each individual project.
Instead of thinking about the size of the project, first consider whether the project is public or private. Nearly every public project will require a construction bond, regardless of its size. In contrast, the owner of a private project may not require the contractor to be bonded, even if the project is very large. It really does depend on the customer and not necessarily the size of the project.
Types of Bonds That May Be Required
It’s important to note that different projects may require different kinds of bonds too. For example, a project manager may require a performance bond, but not a payment bond.
Different types of bonds include:
- Bid bonds guarantee the contractor will not back out if they win the bid. These are usually always required for public projects.
- Performance bonds are often combined with bid bonds, ensuring the contractor will be able to finish the project according to the terms of the agreement.
- Payment bonds ensure the construction company compensates subcontractors. This type of bond may or may not be required, irrespective of the size of the project.
Benefits of Being Bonded, Regardless of the Project
It’s easy to see why bonds are great for project owners for all types of contractor projects, but they are beneficial to contractors too.
First, being bonded ahead of time can make it easier to submit bids for public projects. It can give you an edge, enabling you to submit your bid quickly while other contractors are trying to adhere to the bond requirements of the project.
Contract disputes are less likely when you are fully bonded. Project owners are less likely to argue over details or misuse disputes as a way to withhold payments. Because the surety company is required to thoroughly investigate contract disputes, project owners are less likely to file a claim unless they are serious about transgressions.
When you are fully bonded, you are more likely to find better employees and work with better partners. Subcontractors see you as a stable partner, and potential employees see you as a desirable employer. Potential clients will take notice and are more likely to hire you for the job when they see you have strong relationships with your associates and workers.
Finally, being bonded shows potential clients that you are confident that you can complete the job without any issues. Whether your client requires bonds or not, they will see you as being more able to complete the job, even if both you and an unbonded contractor make the same promises.
No matter what types of contractor projects you have on the horizon, DJM Insurance can make sure you get the right contractor bonds. We offer contractor license bonds, bid bonds, and performance bonds, and because our team has over 20 years of experience working with contractors on big and small projects, we can make sure you get the right bonds at the right price.