Surety Bonds Provide Much Needed Protection
A surety bond guarantees that a contractor will perform the construction project according to the terms of the contract, on time and at the agreed upon price. These bonds allow for competitive bidding, which ensures that options are available for those needing a contractor's services.
Bonds are intended for those qualified for the job
Not contractor is qualified to perform every job that might be available. Bonds are provided only to those who are able to demonstrate to the surety company's satisfaction that they're qualified to do the work.
Surety assigned risk plans or JUAs would eliminate the important prequalification protection surety bond companies provide the public and the government. The loss of this protection ultimately could destroy the open competitive bidding system.
Example of how a bond works
To understand why surety bonds don't belong in assigned risk plans or JUAs, it's important to understand some basic surety concepts. The following example of a public construction project shows how a bond works.
A school district in Orlando, Florida decides to build a new elementary school. The district invites contractors to submit sealed bids for the construction project. After looking over the bids, the low bidder is awarded the contract. The contractor then provides performance and payment bonds.
These bonds (issued in the name of the contractor) protect the school district if the contractor is unable, for any reason, to finish building the school. Because the job was awarded to a bonded, prequalified contractor, the school district benefits by knowing that the surety bond company trusts and believes that the contractor is qualified to get the job done.
If the contractor experiences trouble, the district will still get its school built on time and at the agreed upon price because the surety bond company will provide the necessary funds to see that the project is completed under the terms of the contract.
If an unqualified contractor who automatically received bonds through a surety assigned risk plan or JUA were building the school, that contractor might be totally inexperienced and financially unable to overcome unexpected events that can occur in the construction business:
An economic recession
A strike
Material shortages
Equipment problems, or even
Bad weather conditions
Should the contractor fail, the claim still would be paid. But the contractor's problems already may have already caused irreparable delays and significant inconvenience. Which is why having the insurance that surety bonds provide means having the assurance that the task at hand will be completed on time.
Bonds are intended for those qualified for the job
Not contractor is qualified to perform every job that might be available. Bonds are provided only to those who are able to demonstrate to the surety company's satisfaction that they're qualified to do the work.
Surety assigned risk plans or JUAs would eliminate the important prequalification protection surety bond companies provide the public and the government. The loss of this protection ultimately could destroy the open competitive bidding system.
Example of how a bond works
To understand why surety bonds don't belong in assigned risk plans or JUAs, it's important to understand some basic surety concepts. The following example of a public construction project shows how a bond works.
A school district in Orlando, Florida decides to build a new elementary school. The district invites contractors to submit sealed bids for the construction project. After looking over the bids, the low bidder is awarded the contract. The contractor then provides performance and payment bonds.
These bonds (issued in the name of the contractor) protect the school district if the contractor is unable, for any reason, to finish building the school. Because the job was awarded to a bonded, prequalified contractor, the school district benefits by knowing that the surety bond company trusts and believes that the contractor is qualified to get the job done.
If the contractor experiences trouble, the district will still get its school built on time and at the agreed upon price because the surety bond company will provide the necessary funds to see that the project is completed under the terms of the contract.
If an unqualified contractor who automatically received bonds through a surety assigned risk plan or JUA were building the school, that contractor might be totally inexperienced and financially unable to overcome unexpected events that can occur in the construction business:
An economic recession
A strike
Material shortages
Equipment problems, or even
Bad weather conditions
Should the contractor fail, the claim still would be paid. But the contractor's problems already may have already caused irreparable delays and significant inconvenience. Which is why having the insurance that surety bonds provide means having the assurance that the task at hand will be completed on time.
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