Construction bonds are surety security instruments that offer the project owner a guarantee of completion of their project. These assurance contracts protect the owner from lack of performance, no payment and other financial losses, warranty issues, and issues from the company. To understand what is a performance bond you must first know the three parties involved in this contract:
● The principal (contractor): The person that provides the security.
● The obligee (the project owner): The person who benefits from the security contract in case of any breach of contract.
● The surety (insurance company) provides the contractors with the needed assurance contract after a thorough background check to know if the principal can follow through with what they promised the obligee.
Construction assurance instruments offer services for every part of the process of project development, and it is essential to understand them before finalizing any security instrument.
Here are five essential construction securities used in construction projects like heavy civil work, landscape projects, or real estate development projects. These instruments can be used for government projects like bridges, public sector projects, or private construction projects:
Gaining knowledge about what is a performance bond or payment security instrument will lead you to the question of who can apply for these instruments. Well, if you are an investor in a construction project, you can use these bonds to safeguard your interest.A construction assurance contract provides additional security giving your project development a good start. Moreover, selecting a bond becomes easier once you set your expectations and requirements. It is also essential to understand as an obligee to not abuse the services of the agreement.