A bid bond is an in print statement that guarantees the obligee that the principal will offer his bid, as mentioned in the contract. This statement ensures that the contractor has been entered into the contract. This obligation will give the financial guarantee to the bidder who has signed the contract, if he is victorious in his bid. This bond is otherwise called as performance bond. When the bidder has been successful in his bid then the bonding company will enter into contract like performance bond, payment bond, and supply bond. This bond is necessary when the contractor accepts the very lowest bid of the project. If the suppliers refuse to finish the task, this bond assures the developer to pay the difference between the lowest and the next lowest bid. It will encourage the contractor to accept the bid seriously and make the contract to be successful. Together the principal and the surety are sued in the court of law, for any failure of contract. To the obligee, they should pay the extra expenses incurred by the contract for breaking contract. The amount of penalty would be usually ten to twenty percent of the transaction.
Role of payment bonds in construction work
Friday, July 04, 2008
The payment bond guarantees the contractor would make all the payments to suppliers for labor, materials and equipments. This gives protection for system from liens filed by subcontractors or suppliers of material. For instance, if the contractor fails to pay any supplier, that supplier could file against the bond and obtain payment provided that the claim is justifiable. This is also an avenue of protection the supplier file a claim against the owner. In these instances the supplier will be referred to the bonding company.