The city of New Jersey has been undergoing a period of restoration. The work that has been done is affecting many businesses in a good way. The most reputable agencies understand that a New Jersey surety bond is an indispensable component of any construction project that takes place in the state. Contractors need to secure performance and payment bonds prior to the start of any job.
Without having a surety bond in place, an obligee runs a serious risk of not receiving adequate compensation in the event that the contractor (aka the principal) defaults, or otherwise fails to perform, according to the contract he or she has signed. While there are occasions when the involved parties don’t completely understand the surety claims process, by working together both parties can prevent these types of claims from occurring in the first place.
Understanding the surety bond process
There are two main types of surety bonds relevant for contractors to obtain; they are performance bonds and payment bonds. These types of bonds function as agreements between the surety, the obligee (in most cases a government entity or the client or customer) and the principal. The bond is merely a way to guarantee that if the principal should give cause for costly delays, not perform to the standards set, or forfeit on the project altogether, then the obligee will be given fair compensation from the surety company. This will take place once a claim has been filed.
Performance and payment bonds
Performance bonds are bonds wherein the parties involved are a surety, a contractor and the obligee, the person who has hired the contractor to perform some type of construction work. These bonds provide for a contractor’s performance and act as a guarantee to the obligee’s interests in case the contractor should default. Performance bond claims can also be filed against subcontractors if they fail to fulfill their commitment to a project as well.
Payment bonds concern the interests of subcontractors, material suppliers and laborers working on a construction project. This particular bond guarantees that concerned parties will receive their payment as per bonded contract, if at any time the contractor should fail to pay them in full for their services or does not pay them in a timely manner.
When a surety issues a bond to a contractor, this in some way guarantees that the contractor is reliable, since the company will perform extensive checks to insure the integrity of the contractor before they willingly issue a new jersey surety bond.