All about Surety Bonds
by R&I Consultants
If you own a business, you engage in tons of transactions. If these are done with another party, the ability to protect yourself is important. One way to ensure that your interests are taken care of is to use a surety bond. With a surety bond, you can have the work or actions of another party guaranteed by a bond provider.
A surety bond is a contract among at least three parties:
• The obligee – the party who is the recipient of an obligation,
• The principal – the primary party who will be performing the contractual obligation,
• The surety – who assures the obligee that the principal can perform the task
So, how do bonds work? When a principal wants to engage in business with an obligee, he may be required to buy a surety bond first. After a surety bond is purchased, the surety checks out the capacity of the principal to perform the task at hand. If the surety believes that the principal can perform the task, it will issue a surety bond on behalf of the principal. This bond guarantees that the job will be completed according to the standards of the obligee. If the job is not completed according to proper standards, the obligee can receive financial compensation from the bond.
One example is a contract bond. For instance, these are used heavily in the construction industry by general contractors as a part of construction law, and they are a guarantee from a surety to a project’s owner (obligee) that a general contractor (principal) will adhere to the provisions of a contract.
In addition to contract bonds, there are numerous other types of surety. Some examples are:
• Bid bonds (guarantee that a contractor will enter into a contract if awarded the bid)
• Performance bonds (guarantee that a contractor will perform the work as specified by the contract)
• Payment bonds (guarantee that a contractor will pay for services, particularly subcontractors and materials and particularly for federal projects where a mechanic’s lien is not available)
• Maintenance bonds (guarantee that a contractor will provide facility repair and upkeep for a specified period of time).
This list goes on including but not limited to license and permit bonds, court bonds, and fidelity bonds.
As independent commercial insurance agents, Risk & Insurance Consultants can assist with any surety needs. Just contact us today at 404-459-5975.