Industrial construction companies carry out important projects for many different types of businesses. To facilitate commercial land development, the contractor typically issues surety bonds to the customer. The bond ensures that the construction job is done according to the terms that were agreed upon in the contract.
If the industrial contractor does not complete the project accordingly, the customer can make a claim on the bond for compensation.
There are 3 main types of surety bonds that are issued during an industrial construction contract.
1. Construction bonds
A construction bond is the most popular type of surety bond issued by industrial contractors. It is a type of bond that covers construction projects meant for the public. For example, if an industrial contractor is hired to build a public building or a manufacturing plant, the state or national government will want to make sure that the contractor completes the job according to the stipulations of the contract.
When dealing with public projects, the successful completion of the job is particularly important. This is because the government deals with taxpayer's money. If an industrial contractor is hired to complete a project and they end up embezzling public funds, the state/national government will come under fire from taxpayers.
Construction bonds ensure that contractors adhere to the terms of the contract and complete public projects to the expectations that were agreed upon.
2. Performance bonds
A performance bond is mainly based on the quality of work that an industrial contractor will carry out. For example, if a business hires a contractor to construct a new manufacturing plant, the business may request a performance bond that ensures a certain minimum level of work is done.
If the final project is not done to the required specifications, the business can make a claim for compensation against the bond. In this way, a performance bond ensures that the industrial contractor will carry out a high quality construction project or face a claim for any damages incurred by the customer (the business).
3. Fidelity bonds
Most industrial contractors have a team of employees who carry out important construction work. A fidelity bond protects the customer from any damages that the employees of a contractor may cause while on the job. Actions from negligent employees may include theft, poor quality of service or dishonesty.
With a fidelity bond, the industrial contractor is protected from employees who may make mistakes or purposefully become negligent. How it works is that the business receiving the service will make a claim against the fidelity bond for compensation as a result of the employee's actions.
These surety bonds ensure that the customer receives a high level of service, and that the industrial contractor is protected against any costly claims that a dissatisfied customer may make.