Surety bonds represent the best means of providing full, non-intrusive protection against the perils of contractor default for the following reasons:
Surety bonds provide more than pure financial security and are issued only after an exhaustive evaluation and prequalification process. The process of evaluation and prequalification, which is at the heart of the surety product, provides owners (obligees) with the confidence that the contractor (principal) has sufficient management and business structures in place to assure success.
Surety bonds do not affect the contractor's (principal’s) cash and/or its banking facility. The contractor (principal) has full access to these resources which enables the company to expedite the completion of the bonded project.
Integrity of the Security
A surety bond is in force for the life of the contract and does not expire.
Sureties monitor a bonded contractor's (principal’s) entire work program on an ongoing basis which often allows them to foresee potential problems and mitigate these issues before any impact has been realized on the bonded project.
Surety bonds are "on default" instruments. They support the fairness of the underlying construction contract and require an owner (obligee) to honour its obligations and demonstrate that a default has occurred.
With a performance bond in place, when a default has been declared, the owner (obligee) will end up with a completed project at the amount it contracted.
A labour and material payment bond removes the administrative burden to the owner and ensures that subs and suppliers are paid in full. Any unpaid subs and/or suppliers with direct contracts on the project will not be required to lien a job. Once their bond claim has been validated they will be paid by the surety.