Appletree Insurance Blog
Bid bonds and performance bonds are essential contracts for any building project. These bonds are commonly called construction bonds or surety bonds. There are some significant differences in the bid bond vs. performance bond debate.
To be successful in your next contract, you must understand the distinctions. There are substantial variations that must be considered when designing your next contract. Identify what is ideal for your contract.
Understanding Performance Bond
A performance bond assures the project owner that the contractor will fulfill the contract's obligations. These obligations are under its terms and conditions.
It protects against losses if the contractor defaults and fails to perform its obligations. Subcontractors and suppliers benefit when a payment bond is issued with a performance bond. The payment bond ensures that the terms of their subcontract will pay them.
A performance bond involves the obligee, the surety, and the principal.
Getting To Know Bid Bond
A bid bond is a project bond that covers a developer or owner during the bidding process for new development. If a bidder is chosen, this bond guarantees the project owner that the job will be completed.
In the absence of bid bonds, project proprietors will be unable to ensure that a bidder they have chosen for a project will be able to finish the work.
Generally, the value of the bid bond is 10% of a contract sum. It assures the investor that the tenderer is not only eligible but may seriously take their tender and obey along in their proposal.
Identifying The Distinction Between Bid Bond And Performance Bond
While both bonds are important for obtaining projects and growing your business, several distinctions must be made when comparing bid bonds and performance bonds.
Difference In Coverage
The distinction between performance bonds and bid bonds is the scope of coverage. Bid bonds help determine which contractor will be awarded the project. Performance bonds are used to ensure work is done properly. You may not have to decide what to obtain since a contract specifies you may use both.
To appear trustworthy, you must submit a bid bond and the bid. This document is required every time your company competes for a contract. If you do not have a bid bond, your chances of being chosen are almost nil.
Performance bonds are only required if you win the bid. Consider bid bonds to be your way of getting your foot in the door, whereas performance bonds are for the actual work. You only need to purchase a performance bond to protect the client and subcontractors from costs associated with an unfinished project.
Bid bonds protect both you and your clients because unprofessional construction companies cannot enter into negotiations with absurdly low prices.
Because a performance bond places responsibility squarely on the shoulders of the contractor, it increases the likelihood that subcontractors will want to work for you.
When a bid is accepted, and the contractor begins work on the project, the bid bond is replaced by a performance bond. A performance bond protects a client from a contractor's failure to perform following the contract terms.
At Appletree Insurance, we do our best to ensure that our clients are well-protected with affordable and comprehensive policies. We go the extra mile to help you with your needs. To learn more about how we can help you, please contact our agency at (603) 881-9900 or Click Here to request a free quote. Any coverage discussed is not guaranteed. Please contact us today to go over your policy to ensure your needs are met! We are here and happy to help.
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