Part of the due diligence process before contracting with a construction company is ensuring they are sufficiently bonded and carry the proper insurance with sufficient amounts of coverage.
A construction bond is a financial instrument that a construction company purchases to cover financial losses to the client should the company fail to comply with any building codes or fails to correct a construction defect. Construction bonds are similar to insurance, but with some critical differences.
Construction bonds are purchased with a built in time constraint. If a bond has expired, no one will be able to make a claim against the bond. You may still have the right to pursue damages against the construction company, but the company may not have enough assets to pay off your claim.
It is in your best interest to make sure any contractors are not only sufficiently bonded to meet local requirements, but are sufficiently bonded to pay for any issues from your specific project. This may require negotiating with the contractor to purchase an additional bond.
Even a small construction project involves a lot of different workers, equipment, and heavy machinery. Injuries and accidents are common occurrences on job sites. Who pays for the damages caused by these accidents? As the owner of the property unless you have made specific provisions otherwise, you may be ultimately responsible for paying out on claims made as a result of accidents on the job site.
In order to protect yourself, the construction contract should have an indemnity clause making the contract responsible for any damages (an indemnity clause) and requiring the contractor to carry insurance policies.
At a minimum, the construction contract should make clear that the following types of insurance policies be purchased:
- Worker’s compensation
- Completed operations
Policy limits and other details about the policies and issuers should be discussed in the contract.