Posted on: March 9, 2015 by titan-goodrich
If you are new to the construction industry, you might be a little confused about surety bonds. Are they insurance? Are they licensing fees? And why do you have to obtain them in order to secure larger projects? Understanding surety bonds take time, but working with local Virginia Insurance companies to assess your surety needs can help budding contractors better prepare for entering the industry.
VA surety bonds are three-party agreement where the surety company assumes financial responsibility of project completion and contract fulfillment in the favor of the obligee, or project owner. Essentially, surety bonds ensure that a contractor will perform all necessary obligations in adherence with the contract, or the bonding company must step in and make alternate arrangements for project completion.
There are three primary types of Virginia construction surety bonds: bid bonds, performance bonds and payment bonds. Bid bonds are designed to ensure that a bidding contractor has the financial capacity to fulfill the contract at the bidding price. These bonds outline the requirements for performance and payment bonds. Performance bonds protects the obligee from financial loss in the event that the contractor fails to fulfill all obligations, while payment bonds assures that the contractor will pay certain workers, subcontractors, and materials suppliers.
According to the Surety and Fidelity Association of America, contractors saw over a 30 percent failure rate between 2007 and 2009. What’s more, the U.S. Small Business Administration only 50 percent of small businesses survive the first four or five years of operation. Surety bonds are often necessary to prove that a contractor is financially stable and is capable of completing the contract on time, within budget, and according to specifications.
The pricing of surety bond premiums vary from one provider to another but often range from 0.5% to 2% of the contract amount. The premiums will depending on the size, type, and duration of the project and the contractor. When secured together bonds can also be less expensive.
Finding the right Virginia construction surety bonds is vital to your success as a commercial contractor. At Goodrich & Watson, we offer many types of Virginia Construction Surety Bonds designed to provide financial backup and protect your clients in the event you’re unable to meet your contracted responsibilities. We also specialize in helping contractors throughout the Hampton Roads metropolitan area find complete contractors insurance solutions that meet their needs and protect against risk exposures and loses. To learn more about our Newport News Insurance Agency and all our offerings, contact us today at (888) 829-5004.