When contractors start new projects they usually obtain performance bonds. They are crucial to the overall success of your business, and without them you could be hurting the company as a whole. You should understand why performance bonds are so important, which is why we want to go over a few things with you today.

What are Performance bonds?

When you get performance bonds they will be issued by a financial institution or an insurance company. They are used in the development of real property on most occasions, but also revolve around construction. They help:

* Are surety bonds issued by a bank or insurance company as a guarantee for the completion of satisfactory work

* Help to protect clients

* Make sure the project is completed based upon the contract presented, and if not the client receives compensation.

*Are also known as a good faith deposit, otherwise known as a collateral deposit, which are used to secure future contracts

*Guarantee the value of work, regardless of whether an unfortunate event were to take place

* Can also act as part of a performance or payment bond, which guarantees labor payments and material costs.

* Secure your promise to complete the job in a specified time at the cost you presented during the time of bidding

* Are not built to protect the contractor who does the work.

When are Performance bonds used?

The majority of the time, performance bonds are used in construction contracts. There are requirements to adhere to that revolve around state, federal, and local municipalities. In most cases they are required for every public project out there, especially when:

* Contractors work within the public sector

* The project is over $100,000 and for the federal government

* The project exceeds state and local laws

Why Are Performance bonds so Important?

Whenever a contractor passes on performance bonds they will only be limiting their work. It can:

* Limit the company’s growth

* Only have certain types of projects to work on.

* Make it hard for the government to actually hire you for public construction jobs

In any case, Performance bonds allow a company to grow in regards to the type of work they can do. By having this type of bond, you are ensuring that you will complete the work according to specifications within the contract, in addition to promising that the work will be completed by the time specified. It is important to understand that this does not act as insurance for the contractor, but rather indicates that you are financially capable of covering the work that you plan to do.

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