When selecting a professional roofer, you always want to see that the roofing contractor is bonded for your protection. A bond, also known as a surety bond, is a legal contract that protects one party against monetary loss if the second party fails to perform the agreed task. That means that as the owner of a property, you are protected should your roofing professional fail to fulfill the terms of the contract you agreed upon.
In order to be bonded, a roofing professional must provide a great deal of information to the bonding company. For example, the roofer must submit a business plan, a description of the proposed work or work in progress, multiple financial statements, proof of availability of credit with an accredited bank, the project is well funded, and that the company has a solid reputation and doesn’t abuse subcontractors. For a new company with no track record, a bond is often difficult to obtain, and if they do, they often have limited bonding capacity.
Construction bonds do have some drawbacks. The bonding premium is usually 1-2 percent of the project price — a cost that is passed on to the owner in the form of a higher bid. However, the peace of mind and protection for the owner is often well worth the price.
Bonding is much more common in commercial and industrial roofing projects because of the high dollar value of the materials and the cost of labor associated with the job. Different types of bonds are used throughout the process — bid, performance and payment bonds — and each has a different purpose.
A bid bond is issued as part of the bidding process, usually on medium or large commercial or industrial roofing projects. It constitutes a guarantee that a company will sign a contract for their specified bid price if they are the low bidder.
A performance bond is issued by an insurance company or a bank to guarantee satisfactory completion of a project by a roofing contractor (or any contractor, for that matter). It ensures that the contractor will complete the job according to the contract. If they fail to perform, the performance bond guarantees that no money will be lost in bringing in another contractor to complete the work.
A payment bond is posted by a contractor to guaranty that all subcontractors and material suppliers on the project will be paid. Payment bonds are required in contracts over $30,000 on any Federal Government project and must be issued for 100% of the contract value. They are often required in conjunction with performance bonds.
For any large commercial or industrial project, and even for residential projects, it is not a bad idea to have your agent and attorney look at any certificate of insurance and/or contract (bond) involved.