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Home > Blog > Understanding The Importance Of Surety Bonds In P3 Projects
WEDNESDAY, APRIL 21, 2021

Understanding The Importance Of Surety Bonds In P3 Projects

A building under construction

Nearly all P3 projects include construction, which is a risky venture.

According to research from 2013 to 2015, around 29% of construction contractors would fail, a failure rate of 1 in every four businesses. These odds indicate the need for bonded surety in construction projects.

Although bonded contracts are less likely to go wrong, surety companies provided around 12 million dollars over the last 15 years to aid in completing contracts and paying back subcontractors and suppliers.

Surety bonds have been a necessity for construction projects for many decades now. They play an essential role in project procurement and operations, benefitting the project owner and the contractors.

We have recently seen an increase in the demand for surety bonds for P3 projects. This is because the US is expected to become the largest market for P3 projects in the coming years.

A private contractor and a public government agency representative shaking hands

P3 Projects:

P3 is an abbreviation for public-private partnerships. This means they represent a contract between a public and private company to allow the private sector to be more involved in projects.

P3s help create finance for the public company to obtain more work. It also involves the public agency transferring the project's risks to the private firm since they may be better equipped to handle it.

Because of this, it's crucial to select the right partners to ensure the success of your project. With a surety bond, the private entity's risk is shared with the surety, and they are both responsible for completing the project.

Calculating the costs and risks of a P3 project

Benefits Of Surety Bonds For P3s:

Surety bonds provide a lot of benefits to both the government agency and the contractors.

For the government entity, they provide a guarantee that the contractor will complete the project as stated on the contract. Moreover, it ensures that the public firm won't be responsible for the losses if the principal defaults.

Furthermore, the bonds can reimburse the defaulted amount since the surety and contractor will both be paying the government firm back.

A surety bond ensures that the project will be completed as per the satisfaction of the government. The surety will conduct all the necessary assessments to find out all the risks, and an underwriter will check if the contractor is capable of project completion.

A surety bond can also help the contractor procure more projects since it creates a more trustworthy relationship with public entities.

Moreover, it reduces their risk of default since the surety will find an equitable solution that will be able to save the project in case things go south.

There's no denying the importance of a surety bond when it comes to high-risk projects like P3s. At SuretyEZ, we provide contractor license bonds, construction bonds, and more for all your projects.

Get in touch on our website to speak to an expert about our surety bonds in Los Angeles.

 

Posted 12:18 PM

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