Building permits have been a key indicator of construction sector growth in Canada. Per the research building, permits recorded in January 2021 were valued at 9.9 billion dollars in Canada. But as the industry is expanding rapidly, more strict laws and regulations are being formed to protect the parties involved in the construction project.
One of the mandates is to get bonds for contractors if they wish to bid for any project. Contractors’ bonds are crucial to protect the interest of both parties. Furthermore, construction workers who promise to abide by rules by acquiring contractor license bonds safeguard governmental entities and customers from potential financial harm.
If you are a contract worker looking to bid for a project, you first need to get bonds. For this, you need to know how these work and the different types of agreements you need to get.
How do Contractor bonds work?
When the contractor has violated the terms and conditions, the project owner may submit a claim against the bond, demanding monetary compensation equivalent to the cost of the losses. For example, a project was completed in 150 days rather than 100 days(as mentioned in the contract); in such a situation, the contractor is liable to pay the cost of the damages incurred by the project owner due to the delayed process. Any legal claims will be settled (paid for) by the surety firm that issued the bond. Then they will try to get the contractor who owns the surety bond to pay them a similar amount with interest and fees to satisfy any debts they have incurred.
Types of contractor bonds
- Payment Bond:- Subcontractors carry out most of the actual work on behalf of the contractors while building a home and in most construction projects. So to make sure the subcontractor gets paid for their work, a payment bond is required.
- Bid Bond: This type safeguards the project owner from getting cheated by the contractor. If the contractor backs out after bidding for a project, this bond will ensure that the project owner gets the loss covered.
- Performance Bond: Numerous contractors are involved in a construction project. Thus, developers rely on performance bonds to ensure that each contractor carries out its contractual commitments. A business or person the contractor is working for can submit a claim and recover part or all of their investment if the contractor fails to adhere to those criteria.
- Maintenance bond: They are offered as a promise that the work finished for a contract will continue to be in good shape for a specific amount of time after the task is finished. But if the project owner incurs some damages due to insufficient maintenance, they can file a claim against this agreement.
- License Bond: They are often needed by the state, county, city, and other regulatory authorities. The bond is often a must for those looking to become licensed contractors.
Conclusion Amidst the number of bonds available in the market, the project owner can decide which bond they need and which agreement to avoid and move forward. For example, a project owner might avoid a maintenance bond and can hire a contractor without signing this agreement. However, bonds for contractors are a crucial piece of paper without which they will not be able to grab any project, so if you are a contractor in need of a bond, you can reach out to bonds-providing companies who will provide you with what you need.