Performance bonds, also known as surety bonds, make it easier for a contractor to get hired and provide protection for both the contractor and client. In these days of some unscrupulous contractors, those seeking a builder or remodeler are more suspicious, and having a performance bond is an advantage because they know the job will be completed satisfactorily. Having a guarantee of completion of a project is necessary for many jobs. Taking contractor classes for continuing education is also a requirement and varies from state to state. Finding a simple way to comply with the requirements makes it easier.
What Are Performance Bonds?
Performance bonds are offered by a bonding company and guarantees that a building project will be finished according to the contract. This is not the same as insurance. If a contractor cannot complete a project, the company finishes the project or takes bids from other contractors to complete the job. In this event, the original contractor must pay the bonding company for completion of the project. Contractors who work on public projects are required to have a performance bond, but it is a good idea for any contractor or subcontractor because it can increase the number of jobs.
Who Signs a Performance Bond?
The signatures needed on a performance bond are those of the contractor, hirer and bonding agent. The agency will inspect the project, while the contractor pays the fee and the person or company hiring the contractor will pay the contractor for the work.
What Qualifies a Contractor for a Performance Bond?
Getting a performance bond can depend on whether it is for a project within the contractor’s normal line of work, what the contractor’s credit rating is. A contractor applying for a performance bond may have to pay some money down or have collateral if the credit rating is good but lower that the 700s. Contractors with poor credit will have a harder time getting a performance bond because of the higher likelihood of default.
What Are Bid Bonds for Public Projects?
Contractors who are interested in bidding on public projects must first get a bid bond before they can get a performance bond, as required by the Miller Act. A bid bond is a guarantee that you can get a performance bond and assures the accuracy of the bid.
What If You Don’t Qualify to Get a Performance Bond
If a contractor cannot get a performance bond, he or she can make a cash deposit in the amount of the bond in the bank. After that, the bank can issue a letter of credit. However, having to hold collateral in a bank can adversely affect a contractor’s cash flow, so it is a good idea to go over finances carefully before committing to this type of collateral agreement.
What Does a Contractor Pay for a Performance Bond?
Performance bonds usually cost from two to four percent of the total cost of the project. The cost is usually determined by the credit score, company history and whether this is the first time a contractor has purchased a performance bond or has done so before.
Taking Contractor Classes to Comply With Continuing Education Requirements
Knowing the ins and outs of being a contractor includes purchasing bonds to encourage new business. Contractors are also required to take continuing education courses to keep up on laws, safety standards and in other areas. PDH Contractor Academy offers correspondence and/or online contractor classes for various states that fulfill your educational requirements. Studying on your own schedule eliminates stress, and when you successfully pass the exam, you can download your completion certificate. Browse courses by state to see what courses are offered in each state.