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Private
construction differs from public work in several
ways. Public work is generally limited to competitive
bid, but private work can be acquired in other ways
as well. Private work contracts and specifications
vary widely in form, content, traditions, and standards.
Public work is, however, generally responsive to
codes and guidelines. Unlike public work projects,
where architects, engineers, and administrators
experienced in contract supervision are prevalent,
private owners may not be familiar with construction
operations and procedures and architects and engineers
may not be involved.
Given the inherent risks of private construction,
when a company undertakes a building project, risk
managers are expected to analyze all the perils
that can result in a loss. Yet too often, no attempt
is made to protect against the failure of the contractor
to perform. This can be far more costly that all
other hazards combined.
Project owners would not think of proceeding without
adequate property and liability insurance. It makes
sense to also protect themselves from the disaster
of a contractor going bankrupt, or defaulting on
the project, by requiring surety bonds.
Lenders, as well as owners, also benefit form surety
bonds to protect their resources being lent for
private construction projects. Surety bonds for
private projects have another benefit as well. Reputable
contractors regard the bonding process as a legitimate
part of their business. Requiring payment and performance
bonds discourages unqualified contractors.
Bonds provide protection in several ways: |
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First,
the owner, performance and payment bonds guarantee
that the contractor will perform the contract
and pay the labor and material incurred on the
job. They also give the owner the additional security
of knowing that the contractor has satisfied the
surety's comprehensive prequalification review. |
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| Second,
for the lender, the bonds provide assurance that
if the contractor is paid, the project that secures
the loan will be built in accordance with the terms
of the contract. |
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| Third,
for the architect or engineer, the bond provides
confidence that, in judgment of he surety, the contractor
is capable of translating the plans into a finished
product. |
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| Fourth,
for the attorney, the bonds provide the security
of knowing that their client will be protected should
the contractor fail to perform. |
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| Fifth,
for the risk manager, the bonds provide the satisfaction
of knowing that the owner is protected against one
of the major perils of building, contractor failure. |
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