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Construction Bonds 101

Krissy Campbell

By Kristina Campbell

A construction bond, also known as a surety bond, protects a project owner if a contractor fails to complete a job, doesn’t pay for permits or fails to meet other financial obligations such as paying for supplies or subcontractors.

Surety bonds are important, and quite common, in the construction industry. They typically come in three types:

  • A Bid Bond is issued to the project owner to provide a guarantee that the winning bidder will honor the contract under the terms at which they bid.
  • A Performance Bond guarantees that the contractor will perform the services as described in the contract. A bid bond is replaced by a performance bond when a bid is accepted and the contractor proceeds to work on the project.
  • A Payment Bond guarantees that a construction company will pay its laborers (employees and subcontractors) and suppliers throughout the construction project.

A surety bond is a contract between three parties:

  1. The Principal is the party purchasing the bond and undertaking an obligation to perform the job as promised.
  2. The Obligee is the party requiring and receiving the protection of the bond.
  3. The Surety is the insurance company or surety company that guarantees the obligation will be performed.

How do you know if you need a construction bond? The project owner will decide.

Kristina Campbell has been working with contractors across Maine for their insurance and bonding needs for more than 15 years.

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Who Needs Builder’s Risk Coverage?

From Karen Reed:

Karen Reed

Builder’s risk coverage is essential in helping to protect construction projects, but can be complex and often misunderstood. The bottom line is the materials, supplies and equipment on a building site need protection from theft, fire and other risks.

Who Needs Builder’s Risk Coverage?
Any person or company with a financial interest in the construction project needs builder’s risk insurance. Some common people you may want to include on your policy as insureds include the:

• Property owner
• General contractor
• Subcontractors
• Lender
• Architects

The coverage amount needed is determined by the contract price between the Property Owner and the Contractor. It should be determined prior to the start of construction or renovation as to whom will be responsible for providing this very important insurance coverage.

A builder’s risk policy as part of a thorough risk management plan can boosts a company’s reputation, while protecting your business and providing peace of mind for the contractor and his or her client.

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Insurance Coverage for Construction Risk

By Patrick Chamberlin

As a contractor, you work hard every day – for your customers and to grow your business. Specifically designed insurance solutions can protect those efforts.

You start with General Liability, which covers you for claims involving bodily injuries and property damage resulting from your products, services or operations, resulting from your negligence.  Then we recommend you build a more complete policy from there.

Among the coverages you should consider:

  • Builders Risk: Carried by either the property owner or the contractor, this insures a project (property) during construction.
  • Workers Compensation: A state-mandated coverage in Maine, designed to cover costs when a worker is injured on the job. Subcontractors need their own coverage or an approved predetermination of independent contractor status form.
  • Commercial Property: This coverage pays to replace or repair the insured value of tools and equipment that are owned or have been borrowed or leased in the event of damage due to a covered peril, such as a fire or theft.
  • Errors & Omissions: This coverage can protect the value of your work if it is damaged due to unintentional faulty workmanship.
  • Commercial Auto: This coverage is designed for vehicles used for business purposes. Coverage for hired and non-owned vehicles should also be considered.

It is important to regularly meet with an independent insurance agent to review your exposures and make sure that your policy will respond as expected.

Patrick Chamberlin
Patrick Chamberlin