What does a bond have to do with a construction project?

| Jan 11, 2021 | Construction Law |

Many people in Palm Beach County may think of a bond as something people will need if they get a drunk driving charge or have another brush with the law.

For others, they may think of the bonds they have from the United States Treasury which they can redeem for more than their value.

However, another type of bond, commonly called a surety, is an important component of many construction deals and negotiations.

Property owners, contractors may require a bond as a condition of doing business

Like any other major business deal in Florida, all sides in a construction contract face a lot of risk, and they will want to be sure that the other side fulfills its obligations.

In a construction contract, the property developer, or owner, may require a contractor to secure a performance bond and payment bond.

The performance bond guarantees that the contractor will do the work agreed upon, and a payment bond guarantees that the contractor will ensure subcontractors get paid and, thus, will not pass their bills on to the property developer. Contractors may also use these guarantees with their subcontractors.

A surety company will issue both of these documents. Upon doing so, the surety company is promising that if the contractor does not fulfill its obligations, then the surety will either pay up to the limit on the bond or see to it that the job gets done. In exchange for this assurance, the contractor will put the surety company a premium.

Surety bonds are complicated documents, and they also involve negotiations and either the drafting of other legal agreements.