What is a faithful performance bond?
A faithful performance bond is a type of contract that promises to pay an agreed-upon sum of money if certain conditions are met. It guarantees that the performer will complete the project, on time and as expected.
The performance bond is supplied by a surety company or individual. A party provides this bond because there is some risk involved in the transaction. The intent of the agreement between all involved parties is for one party to provide their work product, another to sell it or use it, and yet another to accept payment without fear of not being paid properly.
A faithful performance bond is not simply a down payment or retainer against future work. It is an insurance policy that guarantees payment to an artist in case of default on a project, either through bankruptcy or a change in the business plan by a client/art dealer/end-user. The issuing company pays “face value,” minus their fee and any interest since the last premium due date. This sum becomes payable on the presentation of proper documentation verifying your claim for entitlement under this policy.
Why are faithful performance bonds necessary?
A contract performance bond is a requirement for all jobs. They’re designed to protect the public by ensuring that contractors complete their projects according to specifications, deadlines, and quality standards set in the proposal or bid through final inspection.
Contractors could be asked to put up a warranty bond if they are bidding on work in which they may damage existing structures or if their work might affect other aspects of an area so it’s critical before the job begins that there’s some protection against non-performance. It will also protect themselves by establishing that they have taken steps to ensure that they can complete the job in accordance with local laws and zoning requirements.
A contractor should always be responsible enough to do this but you know how things go when emotions get hot during bids.
Without a performance bond, it’s possible that the contractor may run into financial difficulties in terms of being able to meet deadlines and specifications. If this happens, he or she may abandon the job and leave you with nothing but an incomplete project.
They might even abscond with your money if they owe subcontractors or suppliers money themselves. Now add to all of this the fact that many contractors are uninsured which means you become responsible for any damage caused by their work while they’re on-site and liable for any injuries while working on your property.
What are some common types of faithful performance bonds?
There are standard types of faithful performance bonds. The first is the contract bond, which guarantees that all work performed during the term of the contract will meet specifications established by that contract. These include plans and drawings, purchase orders, construction documents, operating manuals, etc.
An example is a construction project bid bond. This bond ensures that the contractor will not walk away from a job prior to its completion without completing it according to what was contracted for or reimbursing the owner for any additional cost he incurs as a result of an early departure.
The contractor’s equipment and supply bonds provide coverage against loss/damage to property belonging either to your company or others who have entrusted their property to your care.
Another type of faithful performance bond is the supply bond, which guarantees that all materials used during the term of the contract will meet specifications established by that contract. This includes everything from nails to paper stock to fencing supplies.
Most states require a construction contractor to file a surety supply bond on every project where the material is furnished or installed by other companies not owned by the contractor or his subcontractors. Supplier’s equipment and supply bonds provide coverage against loss/damage to property belonging either to your company or others who have entrusted their property to your care.
Finally, there are labor and employee benefit bonds which ensure that all subcontractor employees are paid according to state laws along with the correct withholding, worker’s compensation insurance, and unemployment taxes.
What is the faithful performance of duty coverage?
Faithful performance of duty coverage is similar to claims-made coverage in that it covers liability arising from wrongful acts committed during the policy period. However, unlike claims-made policies which cover liability arising only after an act has occurred, faithful performance policies also provide for coverage if inherently dangerous acts are committed within a stated retrospective time period prior to the start date of the policy.
For example, you could purchase faithful performance insurance which would cover activities occurring up to two years prior to the effective date of your new insurance policy.
It means that the fidelity bond company will require that all employees perform their duties faithfully; it will not allow any willful or deliberate violations on their part. If an act of dishonesty is committed by an employee, the fidelity bond company will stand in your stead and pay any losses that you incur due to the act.