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Construction involves more risks than moat industries, and the company failure rate is higher as well.
Successful contractors must learn to
manage risk.
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Bonding From time to time a small business, especially those performing contracting services will be asked to bond their work in advance. In some cases certain types of contractors are required to be bonded. What is a bond, how do you get one, and what does it do?

Simply put a bond (sometimes referred to as a surety bond) is a third party obligation promising to pay if a vendor does not fulfill its valid obligations under a contract. There are various types of bonds such as LICENSE, PERFORMANCE, BID, INDEMNITY & PAYMENT. A bond is a financial guarantee that you will honor a business contract. Frequently a customer will require that your company be bonded.

 

What is a surety bond?
A surety bond is not an insurance policy. A surety bond is a guarantee, in which the surety guarantees that the contractor, called the “principal” in the bond, will perform the “obligation” stated in the bond.
A surety bond is a written agreement where one party, the surety, obligates itself to a second party, the obligee, to answer for the default of a third party, the principal. There are two categories of surety bonds... Contract and Commercial.

The broader picture According to the U.S. Census Bureau, the value of construction put in place, excluding single-family residential construction, was about $550 billion in 2005. However, a contractor’s ability to secure some of that work, especially in the public sector, may be limited if he or she is unable to obtain a bid, performance, or payment bond. Fortunately, the surety industry is reaching out to new and emerging contractors to help them obtain their first bond, increase bonding capacity, and ultimately become better businesses. The ability to obtain surety bonds gives these contractors the support and resources they need to increase their contracting opportunities, compete for market share, and grow.