Bonding as Tool…
October 11, 2012 Leave a comment
Bonding as Tool for Sustained Economic Growth
In the modern financial system bonding is requested on large and governmentally subsidized construction projects. To be sure that a project will be executed with needed quality General Contractors and even the Subcontractors are required to be bonded as a precondition for even bidding on these projects. To acquire bonding a company is underwritten by the issuer or the bond holding company.
“Construction bonding is a risk management tool used to protect project owners and developers. A bond constitutes a legal guarantee that the project will be completed as expected. In instances where a bonded contractor fails to perform, the bonding company will provide some form of restitution to the owner. While bonds are not required on all projects, there are strict bonding standards on government work. Many private owners and developers might also require bonds to protect the interests on various projects.
Bonding is a financial tool that enhances the security to investors, developers and owners on projects.
Another tool used in construction business is Mechanics Lien that basically is a security for GC and Subs so they can get paid on construction projects: Mechanics Lien is used on any-kinds of projects large to small, and even it (Mechanics Lien) may slightly differ from State to State the difference is not any great.
Mechanics lien is a financial tool used in construction business that provides additional security to General Contractors and Subcontractors to ensure proper payments on construction projects.
These economic tools are not perfect bringing lawsuits and long financial disagreements, however without them construction business would be in total chaos bringing these disagreements to longer terms.
Bonding and Mechanic Liens are tools that could be well adapted in other sections of the business law which could enhance Small and Medium Enterprises security and afterward make SME lending much easier and less risky.
Breaching contracts by not executing payments by Big Businesses to the SME is a very painful to the whole US economy with consequences taking many SME to bankrupts, and putting on the streets many SME employees: it is well known that more then 80% of all employment comes from SME.
Especially when economic crisis occurs Big Businesses tend to stop payments or negotiate Contracts price reduction in accelerating rate, thus, economic crisis deepens and effects US economy most painfully. Unless Big Businesses that are Global and could switch operations or even file multiple bankrupts and then rise as winners, for SME such bankruptcy filing are very often deadly and many are getting sold looking for equity or even close operations.
The trickle-down approaches of currently used Economics of Capitalism promotes and serves mostly Big Business, and the system worked well because the concentrated capital through such “trickle-down” brought industrial productions down to the US marketplace, but this process of Free Capitalism was totally interrupted by the Globalization and rising Productivity on a ever expanding Global marketplace in which the previously “trickling-down” to the US marketplace capital started “trickling-down” to China and elsewhere else. Large Corporations and Big Investors are moving, outsourcing, and investing to elsewhere in where ROI and projections for better ROI were much better, thus, US marketplace was left to SME to employ the majority of the US workforce when in the same time the “old” support for these Big Guys is still in place.
US Government intervention to the Great Economic Upheaval in the last few years was a result of the exodus of the Big Businesses and Investors from the US marketplace.
However what was done was a natural reaction to the Globalization and if rightly used it (the Globalization) could bring good to America, as long as these processes are rightly evaluated and actions for improving the situation are taken promptly.
One of the things needed for such Globalizing economy is the Bonding, ability to put Lien and correlated Business Contracting business law and regulations that can help SME to become more lend-able.
(For more see: Business Exchange: Market Economy)
©Joshua Konov, 2010