Even a relatively small construction project can be a monumental undertaking. There are multiple moving parts to contend with. Property owners, land developers, contractors, subcontractors, and supply companies must all come together to get things done. In a perfect world, everyone would knuckle down and do their respective jobs. In the real world, herding cats may be an easier prospect than a construction project.
Because it’s not always realistic to rely on people to perform their jobs, parties involved in construction projects will want to minimize their risk if things are delayed or go south. One method of risk protection requires contractors to secure a surety bond.
Two types of surety bonds
There are two main types of surety bonds, a performance bond, and a payment bond. The description of these bonds pretty much says it all.
The performance bond states that the contractor will perform all of the agreed-upon work. The payment bond secures payment for the work of any subcontractors on the project. This can help property developers avoid mechanics’ liens and other legal headaches that can arise when there’s a problem with payments.
Typically, the developer will require a contractor to secure both types of surety bonds. However, contractors may also secure surety bonds to help hold their subcontractors accountable. The state of Utah requires surety bonds for projects that come in over a certain dollar amount.
Surety bonds are complicated legal documents. You should speak with a legal professional before securing such a bond. Doing so can help you understand your rights and obligations and may help you avoid significant legal headaches down the road.