When it comes to construction projects, it tends to be the norm that certain bonds are required by law to be put into place. One of the bonds this typically pertains to is the performance bond. Because these regulations have existed for many years, people do not often think about why they were instituted in the first place. When a contractor is unable to obtain and produce the necessary bonds, it isn’t uncommon for the contractor to call into question whether the laws are unfair. So why were these laws enacted, what purpose does the performance bond serve, and is it really necessary?
What is a Performance Bond?
The purpose of a performance bond is to ensure financial and legal protection for the individuals involved in a construction project. The bond is essentially an agreement secured by the contractor as a way of guaranteeing to the owner of the project that the work will be completed according to what was negotiated in the contract. In short, the bond holds the contractor accountable for performing the work fully and properly. Should the contractor fail to complete the project, the surety agency will step in to ensure that the work is fulfilled and that the project owner is not left with an unfinished project at the hands of an unreliable contractor. Sometimes the surety agency will even serve as an intermediary throughout the process to ensure that the work is being completed on track in accordance with the contract, which provides the owner with additional confidence. Here is some more information on performance bonds.
Is a Performance Bond Really Necessary?
In short, yes. There are laws in place at the federal, state, and even local levels to ensure that performance bonds (in addition to payment and bid bonds) are being utilized for public projects. These laws benefit taxpayers by holding contractors accountable and thus ensuring that taxpayer money isn’t being wasted on endless construction projects that don’t get completed on time, or at all, due to contractor unreliability. Even construction projects involving private property will often take advantage of the protection and security afforded by performance bonds. In addition, some money lenders have even come to require them.
In the end, it is truly in the best interest of the project owner to make use of performance, payment, and bid bonds as part of their construction projects. The primary purpose of the performance bond is to protect the project owner from unfinished projects and contractor failure, and in the end, this is what makes it possible for both public and private project owners to employ the lowest responsive bidder to complete the project, while being able to trust that the work will be completed as agreed upon.