We were just sent a nice article from finances wire about how more businesses are being forced to use performance bonds in the current economy. Although the Federal Reserve has pumped a ton of money into the economy, it is barely limping along at a miniscule growth rate. Thus, companies are needing to protect themselves by what they see as an increased risk of default in the construction industry. This increased risk is seen as many businesses just do not feel comfortable with the growth of the economy, which leads to increased competition by construction contractors and an increasing amount of price competition. This price competition leads to lower margins, which combined with any external shock, can lead to a number of companies going bust.
More Businesses Are Using Performance Bonds as Economy Struggles
Posted on 17. Dec, 2014 by Filiyana McGraves in Business
In the face of economic struggle, the construction industry has taken something of a hit. Now, more companies are using performance bonds and surety bonds in a bid to boost confidence within the sector.
Following the 2008 economic crisis, the construction industry was hit in a substantial way. Now, the industry is recovering and surviving. But, more companies are keen to use a form of protection when it comes to completing projects.
In the face of economic recovery, large corporations want to ensure that contractors are committed to projects. The economy is slowly taking shape and the industry now surviving. Little wonder people are keen to use these kinds of guarantees. In the face of the credit crunch, many business owners were left out of pocket. This was when construction companies failed to get through the difficult financial period. Now, as the economy is picking up, companies want to make sure that their projects are completed with minimum fuss.
The Prevalence of Performance Bonds
As businesses are now coming out of the darkness of the recession, they want to mitigate risks in every way possible. The use of performance bonds is the best way of mitigating and minimising risk within the industry. For many sectors, particularly the construction sector, bonds are a security that the job will be undertaken. With this, they can ensure payment as part of this process. This means that they offer a level of protection to all parties. So, even if a contractor faces insolvency, the company can still recoup their costs. You can find more details at Unitedsuretybonds.com.
The issue of performance bonds can leave some contractors feeling defeated. But, for many professionals they are keen to ensure that the working relationship does not flounder. Now, more and more businesses are eager to use these kinds of bonds to determine payment processes during the slow recovery.
Within the construction industry, performance bonds are often viewed as significant. It ensures that payments are made within a timely manner. But, it also ensures that the demands of the company are met.
With the economy recovering slowly, the need for performance bonds has had a large impact on the construction industry. More contractors are happy to use them, even if the bond does result in immediate payments. As such, these bonds can guarantee a positive working relationship. What is more, they can set out the terms and conditions of the project in a more robust way. A performance bond, therefore, is now being used more than ever. Due to the uncertain nature of the construction industry in previous years, there is a need to safeguard companies. Risk mitigation is at the heart of the construction industry once more.
What Can Be Learnt From This?
More companies are keen to use these kinds of bonds. It is now vital that contractors become comfortable working with them. Insurance was once enough to provide assurance. But, the previous economic failures have seen a greater need for tighter controls around payment. More companies than ever need a guarantee that they will be paid for the contract roles that are undertaken.
The need for risk mitigation is needed more than ever within the construction industry.