Risk & Business Magazine Hardenbergh Magazine Fall 2019 - Page 13

CONSTRUCTION BONDING CONSTRUCTION BONDS AND BONDING BY: DAVID MILLER C onstruction companies are often made or broken by the projects and contracts they are able to obtain. For these companies and the ones hiring them, construction bonds are often used as a type of surety bond, providing a financial guarantee of payment for any bills that are incurred on a given project. In plain English: they protect the assets of investors and project owners against poor work or project noncompletion. There are three players when it comes to construction bonds: 1. PRINCIPAL – The person (or business) who is purchasing the bond to ensure future work performance. 2. OBLIGEE – This is the entity that requires the bond. These are often government agencies which are working in an effort to reduce the likelihood of financial loss and to regulate industries. 3. SURETY – The insurance company which is backing the bond. They provide what amounts to a line of credit for use in the event that the principal fails to fulfill the task. Let’s talk niches. Sports teams, day spas, and low-income housing builders. They all need protection they can count on. Philadelphia Insurance Companies provides coverage for more than 120 niche, real-world industries. We know every niche business has some risk, and each deserves exceptional protection and service. Experience the PHLY difference. Call 800.873.4552 or visit PHLY.com got a niche? Understanding the roles that these three figures play in the bonding process is essential to understanding not only how the bonds work but also who is responsible for what within the terms of the bond. Next, it’s vital to understand the three basic types of construction bonds: • BID BOND – The contractor has diligently prepared his or her estimates and is submitting an offer in good faith. The surety bond guarantees that if awarded the contract, the contractor will sign the final agreement at that price and in compliance with the specifications of the project. The surety issuing the bid bond will provide the appropriate performance and/or payment bond(s) if the contractor wins the bid. • PERFORMANCE BONDS – These are utilized to guarantee the completion of projects in accordance with the contract terms. If the principal was to default, the owner could then call on the surety to ensure contract completion. • PAYMENT BONDS – Payment bonds are meant to guarantee payment to others, including subcontractors, by the principal. Beneficiaries would include suppliers and subcontractors. One of the biggest reasons that bonds are utilized in the construction industry is to allow prequalified contractors the ability to work on Public Works Projects, some of the most lucrative contracts available. The purpose of the bonds is to assure that these projects are done in a timely fashion, according to the required specifications, and within the bid price of the bond. The bonding process can often seem a bit overwhelming for people who are unfamiliar with it, but it really isn’t. Understanding the purpose of the bonds and the terminology used in their execution is a great first step, but talking with a professional about it shouldn’t be overlooked as an option either. For more information and to learn how the bonding process can benefit you, contact me at 856-890-7148 or DMiller@hig.net. + David Miller Sr. attended ESU and Camden County College. During the summer and breaks he would work for his friends’ construction companies. Upon graduation he started in the Insurance Business in 1988 for J.K. Meyer, a small Personal Lines Agency in Medford NJ. David immediately started writing Commercial Insurance for Contractors who were in need of Bonding and in 1989 he set up a Bonding Line with Ohio Casualty. During his time at J.K. Meyer, he was able to grow the business from $300,000 in 1988 to over $10M in premium by 2015 representing several of the top 25 Bonding Companies in the Industry. In 1996 David, along with his wife and two sisters, purchased Meyer Insurance Agency Inc and later sold it to Hardenbergh Insurance Group in 2015. David can be reached at 856-890-7148 or dmiller@ hig.net 13