Bonds of various types guarantee a payment or a reimbursement for financial losses resulting from dishonesty, failure to perform and other acts. A surety bond is a written document in which one party (the Surety) guarantees a second party's (the Principal) performance to a third party (the Obligee) for the Principal's failure to perform an obligation. The Principal has the duty to perform the obligation for the benefit of the Obligee. The Surety guarantees fulfillment of the Principals obligation. The Principal compensates the Surety for its indemnifying it to the Obligee. There are numerous types of surety bonds but most fall under the heading of Contract Surety or Commercial Surety. Most construction surety is Contract Surety.
In the construction arena, this usually means that the Surety is guaranteeing the contractual performance of a contractor to either another contractor or to a construction owner. In the event that the contractor is unable to perform its contractual obligations, the surety steps in to help rectify the situation.
The most common Contract Surety bonds are Performance Bonds and Payment Bonds. The Performance Bond guarantees that the Surety will step up in the event that the Principal is unable to perform its contractual obligations. The Payment Bond guarantees that certain subcontractors and suppliers to the Principal are paid. Almost all public construction projects require Payment and Performance Bonds. Private construction projects can also require these bonds.
What are the benefits of being bonded?
Being bonded gives issuers the ability to leverage business growth. With the increased stature of having the insurer’s credit rating, a business can feel safer in taking risks to improve and grow the business. This is especially true in the construction and financial industries.
A bonded business can obtain unbiased criticism from a credit professional and seek advice in underwriting projects.
Some bonds we handle include, but are not limited to, the following:
- Contract performance bonds
- Bid bonds
- Maintenance bonds
- Payment bonds
- Supply bonds
- License and permit bonds
- Miscellaneous bonds