What are the Common Types of VA Surety Bonds?

Posted on: August 21, 2014 by titan-goodrich

What are the Common Types of VA Surety Bonds?

Most contractors understand that in order to succeed in the commercial construction industry they need to be bonded, but how many contractors fully understand what bonding means? Being bonded simply means that a contractor has attained a set amount of financial security to protect not the contractor, but the other parties they are working with. While a contractor’s insurance policy is designed to help mitigate their own financial losses, surety bonds are funds set aside for the project owner, subcontractors and other parties in the event that something goes wrong in the business transaction.

Essentially, a surety bond ensures contract completion should complications arise leading a contractor to default. If a contractor is unable to fulfill their contractual requirements for any reason, the surety company is obligated to find another contractor to fulfill the contract or compensate the third party for their financial loss.

There are four main types of surety bonds: bid bonds, payment bonds, performance bonds, and ancillary bonds.

  • A bid bond is essentially a guarantee from the contractor to the project owner that the contractor is capable of completing the job for the agreed bid amount. This type of bond is issued as part of the supply bidding process by the contractor, and provides assurance to the owner or general contractor of a project that the project will not incur additional costs.
  • Payment bonds are also posted by contractors, and are intended to guarantee that the contractor has the funds to pay subcontractors and material suppliers for their contribution to the project. Payment bonds are often required in conjunction with performance bonds.
  • Performance bonds ensure that the value of work will not be lost in case of an unfortunate event. Performance and payment bonds work together, to assure project owners and managers receive satisfactory completion of a project by a contractor.
  • Ancillary bond are a type of surety bond where the surety company itself guarantees factors that are incidental and essential to the performance of a contract. Basically, this bond ensures that requirements integral to the contract, but not directly performance related, are performed.

Any federal construction contract valued at $150,000 or more requires contractors to be licensed and properly bonded when bidding or as a conditions of contract award. Most state and municipal governments also have similar requirements. Bonding requirement have also been widely adopted by many larger private projects as well.

At Goodrich & Watson, we offer many types of VA Surety Bonds designed to provide additional financial support and protect your clients in the event that you are unable to meet your contractual obligations. In additional to our Virginia construction clients, we also provide VA Surety Bonds to new business owners, architects and engineers, design firms, and suppliers of all kinds, and many other business operations. Along with protecting your clients, we can also help protect your assets through our comprehensive portfolio of Newport News business insurance solutions customizable to fit the exact needs of your operation. Give us a call today at (888) 829-5004 to learn more about all our offerings.

Posted in: Business Insurance Surety Bonds

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