How Surety Bonds Guarantee Project Completion Part 2
Surety bonds can be employed to guarantee project completion and mitigate many of the risks that are so prevalent in this industry. In part one of this two-part series, a Raleigh contractor attorney at Cotney Attorneys & Consultants discussed how surety bonds can benefit both owners and contractors. We will now go over the most common types of surety bonds and the projects that require them.
A bid bond guarantees that a contractor will bid accurately, agree to work for the price listed in the proposal, and provide the necessary performance bonds. In North Carolina, bid bonds are not required on construction projects. However, state law does require a deposit of five percent of the total bid on public projects. In the event that a contractor cannot afford the deposit, a bid bond will suffice.
A performance bond guarantees that a contractor will complete the work as stipulated by the bond. In the event that a contractor fails to meet their obligations, the surety can compensate the obligee. These funds can then be put towards hiring another contractor to complete work. The Miller Act of 1935 requires performance and payment bonds on projects over $100,000. North Carolina law requires both performance and payment bonds valued at 100 percent of the contract amount on projects over $300,000. Additionally, subcontractors are required to obtain both performance and payment bonds if the cost of their services is over $50,000.
Payment bonds guarantee that the contractor will pay for labor, materials, equipment, or supplies as stipulated by the contract. Subcontractors and other parties can make a claim on the bond if they do not receive owed payments. As seen above, payment bonds are usually required whenever performance bonds are.
Consult an Attorney
If construction projects were always completed on time, under budget, and without issue, there would be no need for surety bonds. The grim reality is that conflicts and cash flow issues are commonplace in this industry. Surety bonds go a long way towards guaranteeing the completion of a construction project, but in no way guarantee that a dispute can be avoided. Our Raleigh construction law firm specializes in construction law and is here to assist you in the event that you are involved in a construction bond dispute.
If you would like to speak with a Raleigh contractor lawyer, please contact us today.
Disclaimer: The information contained in this article is for general educational information only. This information does not constitute legal advice, is not intended to constitute legal advice, nor should it be relied upon as legal advice for your specific factual pattern or situation.