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SpinDistribute.com Article Directory

The following article was published in our article directory on May 8, 2013.
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Getting Things Done with the Performance Bond

Article Category: Business

Author Name: [email protected]

The performance bond is a special bond type used whenever someone hires the services of contractors to execute and complete projects. The bond is issued to a certain party within a contract made as guarantee against failure of another party of that contract to execute the obligations.

Contractors for example, may issue the bond to clients for whom building structures are being constructed. Should they fail in the construction according to what was written in the contract, then the clients can expect to be compensated for any monetary loss incurred.

Such bonds are usually used in construction projects and the development of any real property. This is where owners can opt to require the developers to encourage the procurement of the bonds so that the work value in every project is retained, especially in cases of unfortunate events (contractor insolvency). In some situations, the bond may be requested in some other larger contracts made aside from civil construction projects.

Note that there are many aspects to the functions of a performance bond, each having its own place within the financial world. You should not confuse it with the security bond (which is generally investment types) since it has no part in making investments. The same goes to insurance, though it has some similarities to the construction insurance type (without the premiums of course).

Consider the performance bond as an agreement between parties binded together in a contract, with one side owning the project (owner) that was made possible because of the contract, and the other side (contractor) who functions to execute and complete the whole project.

This particular bond rewards the contractors with large-scale jobs from whosever that requires their services. This is an important tool to encourage trust between the parties involved, especially if they have no prior history working together. In this situation, it is the owners who will clearly benefit from what the bond is set out to do. The contractors, for their part, will have to establish rapport with bond agencies on a long term basis.

This particular bond is nothing like insurance; contractors are obligated to pay the project expenses themselves, especially the costs involving project inspections, and any other costs reimbursing the owners for wasted time on the project. These may pile up quickly (which is not good news by the way) forcing contractors they are up to the job before presenting the bond to the other party.

It's also worth noting the advantages of the bond process directed towards the contractors. The bond mainly allows the contractors to adjust to the bidding requirements set out by both private and government projects. Since it is not considered as a type of insurance, everybody understands it well to be a financial guarantee. The presence of the bond is what increases the jobs available (including the size of such jobs) that every contractor can bid on.

Overall, performance bonds are issued as a "Performance or payment Bond" component, where the payment bond will guarantee that contractors will have to shoulder the material and labor costs.

Keywords: surety bond, surety bonds, performance bond, getting bonded, bid bonds, minority contractors

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