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If you’ve ever been involved in the construction of a house, you are probably familiar with the uncertainty of the process. Though we’d all like things to run smoothly without a hitch, sometimes unforeseen obstacles arise that might cause delays or cause the estimated cost of building the home to rise drastically. Sometimes these instances are completely unforeseeable and unpreventable. However, another problem is an unreliable contractor who doesn’t complete projects on time or who doesn’t do quality work. Though we’d all like to trust in the honesty of our contractor, sometimes we must protect ourselves to ensure that we don’t take a huge financial loss.
One way to accomplish this is through something called a performance bond. A performance bond is type of surety bond issued by an insurance company or bank that guarantees the satisfactory performance of a contractor. In this way, if your contractor doesn’t complete your project in the manner which you agreed upon, you are guaranteed financial compensation for the amount agreed upon in the performance surety bond. Most often this happens in cases of contractor bankruptcy. Many government construction projects require these types of bonds to guarantee that the work contracted will be performed.
Surety bonds always involve three parties: the principal, or the person performing the service which would be the contractor. The second party is the obligee or recipient of the services, which would be you. And the third party is the surety, which in the case of a performance bond, would be the insurance company or bank issuing the performance bond. These bonds are designed so that you can rest easy knowing that your project is guaranteed.