Surety Bond Misconceptions Part 1
Obtaining a surety bond isn’t as difficult as some contractors believe. As Tampa construction lawyers, we know that if a contractor has been working on a public project, there is a pretty good chance they’ve heard a few myths about surety bonds. These misconceptions range anywhere from the idea that surety bonds are unaffordable to wondering if they are even necessary.
Due to these inaccuracies, most contractors will avoid projects that require surety bonds, leading them to miss out on beneficial work opportunities, or operate without using the required bonds, which risk their legal standing and put their company in jeopardy. In this three-part article, we will discuss these surety bond misconceptions with the hope that contractors will be less hesitant to learn more about projects that require these bonds. To view the second and third installments of this article, please visit Part 2 and Part 3.
Surety Bonds Are Expensive
One of the most common misconceptions about surety bonds is that they are too expensive for contractors, causing many smaller companies to avoid them completely. The truth is, the contractor often does not pay anything in the end. A surety bond is typically between 1% and 3% of the contract sum. However, the contractor must pay the bond premium after they actually win the bid. If surety bonds are needed for the project, all bidding contractors will face the same requirement, but what some contractors are unaware of is that only the winning bidder will pay the payment and performance bonds. In nearly all of the cases, the owner of the project will compensate the bond price with the first payment towards the contractor.
Surety Bonds Aren’t Necessary For Large Construction Companies
This particular misconception is from the thought that big players in the construction industry are invulnerable when it comes to failure, so they don’t need to procure surety bonds. This misconception might come as surprising, and it is not true. Bigger construction companies can and do have financial issues.
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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.