You have probably heard more than one horror story about a contractor not showing up to finish the job or doing sloppy work. Sometimes the story is a little different and the project went way over budget and took far too long to complete. It makes you apprehensive about hiring a contractor for your project doesn’t it? There is a solution to this, you can insist on a performance bond. Let’s look at why a performance bond is necessary for your project and how it can protect you.
What are performance bonds?
Let’s start by defining what a performance bond is. These bonds are issued by an insurance company between you and the contractor they ensure that the contractor will fulfill the duties outlined in the contract. If for example you hire a contractor to build your dream home, you want to make sure that the money you pay up front goes to the cost of building the house and not the contractor’s next vacation. Here is a closer look at what performance bonds are.
What’s involved in a performance bond?
Following the house building example, once you reach a tentative agreement with a contractor to build your home they would contact an insurance company to get a performance bond. How much they pay for the bond will depend on the overall cost of the project and the reputation of the builder itself. Is your contractor a straight shooter who has a good reputation for getting things done? Has he been taken to court before because of inferior work? All of those things will determine the cost and whether he can get a performance bond.
Protection for both of you
At the end of the day either the contractor will complete the job according to the terms of the contract or he won’t. If your house gets built on time and according to specs the contractor gets paid and everyone goes home happy, but when that doesn’t happen performance bonds give you some recourse. Should the project take too long, and we’re not talking about a day or two but weeks too long , or the contractor runs out of money and can’t complete the job you can go after the surety company. Because of having the performance bond in place you can recover your costs and expenses.
Is it really necessary to insist on a performance bond?
That really depends on the scope of the project. If you are having your dream home built and investing your life savings, then yes, make sure you protect yourself. For small projects or working with a contractor that you’ve known for years, you can probably bypass the performance bond process. Remember it is always better to be safe than sorry!