There are many things that can go wrong on a construction project. No matter what goes wrong, there are two things that they have in common. They will delay the project and they will cost money. Project managers work hard to avoid any problems because of this. One of the problems that they will face is the delay in the delivery of supplies.
It is one thing if the delay is because the supplier cannot get the supplies that are needed. That may be out of the project manager’s control. The best solution to this issue is often to find another supplier who can deliver what is needed. If the delay is because the supplier has not been paid for what they are owed, or if the supplier thinks they won’t be paid, that is a different issue. That is something that the project manager can control. One of the best ways to do this is through a supply bond.
What is it?
A supply bond is a surety bond. It guarantees the payment to the supplier if the money for a construction project runs out. The bond is posted before the supplies are ordered. The suppliers are willing to send the supplies because they know that one way or another, they will get paid. A supply bond is often required for many projects in order for them to even begin.
Supply bonds are often thought to be a type of insurance. In a way they are. They do provide payment in the case that something happens that makes it impossible for the project manager to make payments for supplies that have been used. The supply bonds do not require premiums that come with typical insurance policies. Instead the fees for the bonds are a percentage of the value of the supplies. If the supplier makes a claim on the bond, it is the responsibility of the project manager to make good on the bond at some point.
Why use it?
There will be some people that wonder why a supply bond is necessary. The supplies needed for a project can be paid for as they are used or the project can use a line of credit to pay for the supplies when they are delivered to the project. If a project manager chooses to use these methods to pay for supplies that are using one of the most important assets of any construction project. They are using up the available cash to pay for the supplies. If the project is a lengthy project, this could be very costly and could cause problems for the project at some point.
The supply bond allows the project to get the supplies they need without tying up the needed cash. They can pay for the supplies over the life of the project. IT is the safer way to do business. The more available cash that a construction project has, the easier it is to keep the project moving along and on time.
The cost of any construction project is something that needs to be watched. Every construction project should have a budget. It should also have a timeline and a date when the project is expected to be finished. In order to reach these goals, bonds that guarantee payment to everyone involved in the project are a useful tool. They help keep everyone on the project working because they know that they will be paid. It does cost money to get these bonds. The project manager should make sure they have enough of the bonds without spending too much for them. The project managers that can do this are the ones that finish projects on time and on budget. They are the people that are doing the job the right way.