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Payment and Performance Bonds Explained

January 16, 2022/in Bonding, Construction, General Business Insurance, High-Risk Insurance, News
Payment and performance bonds

Payment and performance bonds… The two are an odd pairing—unique in their own way yet dependent on each other.

Although payment and performance bonds have their differences, both are essential in protecting yourself in the world of insurance. Let’s explore the differences below.

Payment Bonds

What is a payment bond? Simply put, a payment bond guarantees payment for subcontractors and payment for materials once a project is completed.

Payment bonds are most commonly seen in construction. Payment bonds are a type of surety bond and are required for most state projects based on the Miller Act.

Surety Bonds

What is a surety bond? 

A surety bond is a contract where one party (the surety company) guarantees the performance of certain obligations in a contract of the second party (the principal or the insured) to a third party (the obligee).

When Do You Need a Surety Bond?

Surety bonds are needed for most licenses in the state of California and other states as well. Some examples of who might need a surety bond include:

  • Contractors
  • Real estate companies and agents
  • Financial institutions
  • Janitorial staff

Why Do You Need a Surety Bond?

Licensed bonds are required in many states to do business and are put in place by the state to protect consumers.

The insured, or principal, purchases these bonds in an amount prescribed by the state to pay the obligee (the state), in case there’s a claim against somebody’s license.

The Miller Act

As previously mentioned, surety bonds are required for most state projects based on the Miller Act.

The Miller Act was passed by the U.S. General Services Administration Public Buildings Service (GSA) to explain how payment bonds protect subcontractors and suppliers.

The GSA responds to any reports of nonpayment, following the legal action needed and protected by the Miller Act.

The GSA states that “the Miller Act requires that prime contractors for the construction, alteration, or repair of Federal buildings furnish a payment bond for contracts in excess of $100,000.” 

There are legal consequences for breaking a contract through the Miller Act.

The GSA expands: “Failure by a contractor to pay suppliers and subcontractors gives such suppliers and subcontractors the right to sue the contractor in the U.S. District Court in the name of the United States.”

Performance Bonds

The main difference between payment and performance bonds is that a performance bond ensures that the employer is satisfied with the job.

While both payment and performance bonds are surety bonds, performance bonds are visible in industries outside of construction.

A performance bond, according to Investopedia, “ensures the completion of a project.” A performance bond covers the ability of the contractor to perform and finish the job as per contract requirements.

If the contractor doesn’t perform, the contract bond kicks in and helps to pay for the completion of that performance.

A performance bond involves three parties:

  • The principal: The primary contact in the performance bond; responsible for performing the contract
  • The obligee: The person receiving the obligation
  • The surety: Responsible for making sure each party complies with the performance bond obligations

A Final Note

If these bonds are used and there’s a claim on a bond, the contractor who purchased the bond has to pay that back.

This considered, surety companies look for strong financials in a company, including assets, lines of credit, and letters of credit.For more information, watch this video about surety bonds and contract bonds. There, Brenda Jo Robyn, founder of Competitive Edge, lays it all out on the table in a way that’s easy to understand.

https://compedgeins.com/wp-content/uploads/2021/07/iStock-1209272786.jpg 1414 2121 Brenda Jo Robyn https://compedgeins.com/wp-content/uploads/2020/11/logoweb.png Brenda Jo Robyn2022-01-16 07:00:002022-09-16 13:10:19Payment and Performance Bonds Explained

What’s the Difference Between a Surety Bond and a Contract Bond?

November 28, 2021/in Bonding, Construction, High-Risk Insurance, News, Video

The world of insurance can be complex—and for contractors, work can be dangerous, too. As a contractor, the question of what insurance you need to stay protected is likely to come up.

So, for starters: What’s the difference between a surety bond and a contract bond? Which do you need to stay safe?

Today, Brenda Jo Robyn, founder of Competitive Edge Insurance, is here on camera to give us the spiel; including the differences, benefits and risks, and what you need. Let’s dive in.

What is a Surety Bond?

There are three parties involved in a surety bond, including:

  • The surety company
  • The principal or the insured
  • The obligee

A surety bond is a contract where one party (the surety company) guarantees the performance of certain obligations in a contract of the second party (the principal or the insured) to a third party (the obligee).

When Do You Need a Surety Bond?

Surety bonds are needed for most licenses in the state of California and other states as well. Some examples of who might need a surety bond include:

  • Contractors
  • Real estate companies and agents
  • Financial institutions
  • Janitorial personnel

Why Do You Need a Surety Bond?

Licensed bonds are required in many states to do business, and are put in place by the state to protect the consumer.

The insured, or principal, purchases this bond in an amount prescribed by the state to pay the obligee (the state at this point), in case there’s a claim against someone’s license.

What is a Contract Bond?

A contractor performance bond is a written contract that guarantees the performance obligations under a contract.

Contractor performance bonds are used frequently in the construction industry but are also sometimes used in manufacturing and supply chains as well.

When Do You Need a Contract Bond?

The short answer: It depends! Contractors can be required to have a contract bond for different parts of the process when they’re bidding for a job, according to Brenda Jo.

What Is a Bid Bond? When Do You Need One?

Oftentimes, a bid bond is required to submit a bid for a project. Typically, these bids are in the public arena for states or cities. For example, the Department of Forestry.

“A bid bond lets this entity know that the contractor can provide a payment and performance bond should the job be awarded to them,” says Brenda Jo.

“If the contractor is awarded the project and the contractor decides that they cannot fulfill the obligation, the bid bond helps to pay for the difference in price that it costs to get a new contractor in.”

This leads to the next kind of bond couplings, which is the payment bond and the performance bond. Let’s discuss.

Payment Bonds and Performance Bonds

What is a payment bond? What about a performance bond?

A payment bond is a bond that guarantees payment for subcontractors and payment for materials.

A performance bond, on the other hand, covers the ability of the contractor to perform and finish the job as per contract requirements. If the contractor doesn’t perform, the contract bond kicks in and helps to pay for the completion of that performance.

infographic showing the difference between a surety bond and a contract bond

A Final Word

An important note: For all bonds mentioned, if they’re used and there’s a claim on a bond, the contractor who purchased the bond has to pay that back, says Brenda Jo.

This considered, surety companies look for strong financials in a company, including:

  • Assets
  • Lines of credit
  • Letters of credit

Surety companies look for anything that creates a picture that says you’re worthy of having a bond put into place—because if the bond is utilized and pays out, they need to know that the purchaser of the bond can pay that money back.

Bring in The Experts

At Competitive Edge Insurance, we work with insurance carriers across the country to place all types of business coverage. We are always seeking out new insurance companies to write hard-to-place and high-risk business insurance.

Don’t let cancellation dissuade you from finding comprehensive coverage. We can help! Learn more by connecting with our team today.

Additionally, for those interested in learning more, choose between our articles on the key differences between general contractors and construction managers and the difference between payment and performance bonds.

https://compedgeins.com/wp-content/uploads/2021/10/Whats-the-Difference-Between-a-Surety-Bond-and-Default-Insurance.png 628 1200 Brenda Jo Robyn https://compedgeins.com/wp-content/uploads/2020/11/logoweb.png Brenda Jo Robyn2021-11-28 07:00:002022-05-27 09:45:25What’s the Difference Between a Surety Bond and a Contract Bond?

Four Types of Insurance Coverage for your Business

September 19, 2021/in Bonding, Construction, Cyber Insurance, General Business Insurance, Health & Wellness, News

There are so many options for insurance that it can be overwhelming to know which research steps to take as a business. At Competitive Edge, we help you navigate what coverage best fits you and your business. 

Health and Wellness 

Niche beauty insurance solutions can miss areas of business insurance that might bridge gaps in the event of falls or other general liability claims. With health and wellness insurance, unique situations are bound to arise depending on your business’s current environment and changes. 

The various Health and Wellness sectors that Competitive Edge caters to include: 

  • Beauty 
  • Spa Owners
  • Hair Salon Owners
  • Nail Salon Owners
  • Fitness
  • Yoga Studio Owners
  • Pilates Studio Owners
  • Dance, BarreFit, and Additional Exercise Studio Owners
  • Martial Arts Studio Owners
  • Health
  • Naturopathy Practices
  • Audiologists
  • Speech and Occupational Therapy Centers
  • Alternative Therapy Centers
  • Acupuncturists

To provide you with the right coverage from the right carrier, we need to know about your business. It’s not enough to put all cosmetology companies in one box, all spas in another, and all beauty product companies in yet another pre-planned box.

Cyber Liability

Cyber liability is a growing industry because of the evident rise in technology, and the hacking that comes with progress.

Does this sound like news to you? Don’t worry—we already wrote an article here for you to read about reducing cybersecurity risk. 

It’s important to understand what might be covered under your cyber insurance policy. 

  • Data Breaches
  • Intellectual Property Rights
  • System Failure
  • Damages to a Third-Party System
  • Cyber Extortion
  • Business Interruption

Traditional business liability insurance likely won’t cover any cyver risks associated with your business. 

Bonding

Surety bonds offer an important secondary level of coverage. 

A surety bond is a contract involving three parties. It is a promise to be liable for the debt, default, or failure of another.  These three parties include:

  • The Principal: The party that purchases the bond and undertakes the obligation to perform the act as promised.
  • The Surety: An insurance company that guarantees the obligation to be performed. If the principal fails to perform the act as promised, the surety has a contractual obligation for the losses.
  • The Obligee: The party who requires and receives the benefit of the surety bond.

There are two categories of surety bonds: contract surety bonds and commercial surety bonds.

Contract surety bonds are typically written for construction projects. If a contractor defaults, the surety company is obligated to find another contractor to complete the contract. Another option for the surety company is to compensate the project owner for the financial loss incurred. There are a few bond types of contract surety bonds.

Contract sureties are required during a federal construction contract valued at $150,000 or more. State and municipal governments have similar regulations. Note that contract sureties may also be used with a private owner.

Commercial surety bonds, on the other hand, cover a broader range of surety bonds. These are required of individuals and businesses by federal, state, and local governments.

These bonds can be required by the government to obtain a license. For example, mortgage brokers, contractors, and auto dealers may be required to obtain a license or permit bond. These bonds can also be required to protect various statutes, regulations, ordinances, and other government entities.

General Business Insurance

General business insurance covers areas such as property damage, bodily injury, product liability, libel, slander, and copyright infringement.

Hindsight is no place for general business insurance conversations as lawsuits are a sad reality for many businesses. Just one bodily injury or property damage claim can take away everything you’ve worked so hard to build. General liability insurance provides businesses with coverage for most damages, injuries, medical costs, legal fees, and settlements in the case that you’re being sued.

Construction Insurance

Shock losses from large claims can make it difficult to get affordable insurance in the high-risk field of construction. If your insurance was canceled or non-renewed, we can help. 

Our depth of experience and exemplary reputation with the carriers we work with can find a home for your hard-to-place and high-risk clients can find the right coverage. The fact is, every business can find coverage, you just have to take the time and know where to look. 

The businesses we work with include: 

  • Roofing
  • Construction
  • Commercial Property
  • Commercial Real Estate
  • General Liability (CGL)

Errors and Omissions Insurance

In the CRE industry, agents are at higher risk of being accused of failing to meet a client’s expectations, failing to document decisions or actions, or failing to act in a customer’s best interest. This could be an error on a title or an oversight in a property listing, which could lead to a costly lawsuit. 

Errors and Omissions (E&O) insurance covers against financial losses from lawsuits filed as a result of an agent’s work in the real estate profession. These policies cover liability related to the following issues:

The client may claim that you made an error that led to financial loss. In a lawsuit regarding professional mistakes, you may be at risk of losing big, considering the size of commercial property transactions.

An example of this is when a real estate agent misstates the square footage of a property. If the agent has Errors and Omissions Insurance, however, they may be covered for attorney’s fees, court costs, settlements, judgments, and fines. 

Potential E&O Exclusions

While it’s important to know what E&O insurance covers, it’s also important to understand potential exclusions. Some common exclusions in E&O coverage include claims resulting from dishonest or criminal acts. As well as claims associated with a polluted property. If any agent causes bodily harm or death to another person, or the agent causes damage to someone’s property, their claims will not be covered under E&O insurance. 

In the CRE industry, it’s more common to face a lawsuit related to errors and omissions so it’s best to be covered before you need it. Roger J. Stewart is an expert in providing coverage for real estate professionals and has helped various CRE investors and agents avoid risk and save money throughout the years.

At Competitive Edge Insurance, we work with insurance carriers across the country to place all types of business coverage. We are always seeking out new insurance companies to write hard-to-place and high-risk business insurance. 

Don’t let cancellation dissuade you from finding comprehensive coverage, we can help! 

Contact us today at Competitive Edge to find out more information.

https://compedgeins.com/wp-content/uploads/2021/08/iStock-1263838446.jpg 1414 2119 Brenda Jo Robyn https://compedgeins.com/wp-content/uploads/2020/11/logoweb.png Brenda Jo Robyn2021-09-19 14:08:002021-11-01 16:08:08Four Types of Insurance Coverage for your Business

Why Bondability Is Important for General Contractors

June 13, 2021/in Bonding, Construction, News

Congrats! You have bondability, or at least we hope you do as a general contractor… When it comes to the construction industry, there is a high risk involved. When a general contractor has bondability, it means they’re capable of passing an insurance company’s background check of sorts, so a bond can be issued.

Although a client might save a chunk of change by choosing a contractor who isn’t bondable, choosing a general contractor who is bondable is key to their project’s success and safety. The bottom line: Choosing a contractor with bondability is something that clients do to protect themselves during construction.

At Competitive Edge, we understand bondability. We build your case to the carrier to ensure that you get the right coverage at the best price based on your real-world conditions. So, here are three reasons why it’s important for you, as a general contractor, to be bondable. 

Bondability Shows Clients That You’re a Safe Option

Whether or not a general contractor has bondability tells you a lot about them. Having bondability shows clients that you’re a safe option to work with! If you don’t have bondability or if your bonding capacity is minimal (typically under $250,000), many clients might view this as an indication of problems you might have faced in the past.

Contractors who are not bondable can give off the impression that they’re inept at finishing a project, keeping up with their finances, or that they take on too many projects at once. It isn’t typical for a client to jump into work with a contractor whose background they aren’t familiar with.

When a contractor has bondability, it gives off the impression that you’re serious about your work, as a surety company must thoroughly investigate, review, and consider a contractor’s relevant information before bonding them.

Bondability Protects a Client’s Financial Investments

As a contractor, you should be bondable to give yourself and your clients financial peace. Picture this: You’re a client who has hired a non-bonded contractor. Fast forward months or years down the road, and your contractor has decided to not complete their work on your project. For you, a client whose contractor is not bondable, your financial investment is torn. A client can be out millions depending on the size of the project if they decide to choose a contractor who isn’t bondable.

General contractors have bondability because it gives clients financial protection—on the off chance that you don’t finish your work. Contractors, in large projects especially, are typically bonded so if their work does not get completed, the bonding company can step in to pay to complete the project.

As a good general contractor, you want to prioritize bondability to protect your clients as well as your reputation.

Bondability Demonstrates Professionalism

When a contractor takes the necessary steps to achieve bondability, it demonstrates that they take their work seriously. Being bondable also shows that a contractor values their clients and has their interests at heart as well.

Mike Lechner, a bonding agent at Guy Hurley, says, “Bonding capacity is an indicator of a contractor’s character, experience, and financial viability underwritten by a professional third party.”

Needless to say, a contractor who does not pursue bondability often lacks the skills to efficiently complete a project. Even if a client’s project does not need a bond cost-wise, be prepared to be asked if you are bondable. Bondability, in fact, is a quick and easy pre-qualification tool that many clients use. And, of course, you don’t want to miss out on work as a result!

Simply put: Clients want to work with professionals who yield low risk. Our team at Competitive Edge can help you be that contractor if you’re not already. If you are a general contractor who is considering bondability, contact us today at Competitive Edge to learn more.

https://compedgeins.com/wp-content/uploads/2021/05/iStock-157191789-scaled.jpg 1649 2560 Brenda Jo Robyn https://compedgeins.com/wp-content/uploads/2020/11/logoweb.png Brenda Jo Robyn2021-06-13 14:58:002021-11-01 16:25:52Why Bondability Is Important for General Contractors

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