Running a contract business will require a number of needs to be met. In particular, it is essential to adequately manage the risks and liabilities that may come from undertaking contracts from your clients. More precisely, individuals might need to obtain a contract bond before a client is willing to work with them.

What Is The Purpose Of Having A Contract Bond?

It may seem like obtaining a bond to simply sign a contract is somewhat unnecessary. However, large-scale projects can be immensely expensive for individuals to undertake, and if it is realized that the company awarded the contract is unable to complete the work, there can be major costs incurred. By having a contract bond, the client will be protected in the event you are unable to complete the project as these bonds will cover the costs that were incurred as a result of the contractual failure.

How Are Contract Bond Claims Handled?

When it becomes apparent that you will be unable to honor the exact terms of the contract, it may be necessary to start the process of filing a claim. During this process, the customer will need to initiate the claim with the bond issuer. Once the bond issuer has been notified, you will be contacted to verify the facts of the matter. After this information is verified, the bond issuer will provide the compensation for the client's damages. Interestingly, you should be aware that this will not function as normal insurance. Rather, the bond issuer will immediately pay the client for the damages, and you will be responsible for repaying the bond issuer. In order to make this payment process as manageable as possible, bond issuers will often make payment arrangements for settling these debts.

Is It Possible For A Startup To Obtain A Contract Bond?

There are many factors that can play a role in determining the costs of securing a contract bond. Often, individuals will assume that the length of time the enterprise has been open will be the most important factor. This can lead these individuals to assume that startups will have very difficult times qualifying for this type of bond. However, most bond issuers are perfectly capable of underwriting a contract bond for a startup company. Typically, companies that are still fairly new will be charged a higher rate for obtaining this type of bond. As your company establishes a history of successfully meeting its contractual obligations, the premiums for obtaining these bonds will steadily decline.