Investing in a large-scale construction project can be a daunting task. There are many risks associated with the construction process, and many of these risks could result in financial losses. Finding ways to protect your investment is critical when it comes to financing a large-scale construction project.
Here are three reasons why you should consider requiring a performance bond for all major construction projects you finance in the future.
1. A performance bond helps vet your contractor.
A performance bond is essential a three-way contract between you, a surety company, and your contractor. The contractor promises to complete the work as outlined in your contract, you promise to provide timely payment for work completed, and the surety company agrees to compensate either party if contractual obligations aren't met.
In order to secure a performance bond, your contractor must meet a surety company's rigorous standards. Requiring a performance bond can be a simple and effective way to vet your contractor, ensuring you have access to a reputable and reliable individual who can oversee your construction project.
2. A performance bond helps to ensure quality.
Since the performance bond requires a contractor to complete his or her work according to the specifications outlined within your contract, you can count on the work completed by your contractor to be quality when you require a performance bond.
The contractor will not want to incur the financial penalties associated with violating the terms of a performance bond, so these bonds can be simple and effective tools to help you ensure that your construction project is completed according to the highest standards possible.
3. A performance bond prevents third-party liens.
Once your large-scale construction project is complete, you want to ensure that you own the project free and clear. When a contractor doesn't pay for materials or the work of subcontractors, these providers can place a lien on your project until payment is made.
When you have a performance bond in place, these liens cannot be filed. A performance bond helps to protect you against potential liens that could compromise the value and accessibility of your property once a major construction project is complete.
Being able to recognize the benefits you will enjoy when you have a performance bond in place allows you to see the importance of requiring these bonds to protect your financial interests in all of your major construction projects in the future.