Surety bonds can be used to ensure that government contracts are completed, cover losses arising from a court case or protect a company from employee dishonesty.
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Failure to complete a project
Failure to meet standards
Failure to complete a project coverage
A contractor might start a project but fail to complete it due to some reasons.
Surety bonds can be taken to guarantee that an insurance company will reimburse your client when your business fails to complete a project or fulfill a contract.
License/permit requirements coverage
You may need a valid license or permit to apply for a particular project which can only be taken you get your license.
If you have surety bonds, you can get your license/permit on its security.
Failure to meet standards/regulations coverage
A contractor might get booked for not meeting the standards of his work as promised.
Surety bonds can be taken to guarantee that an insurance company will reimburse your client when your business fails to meet its standards.
Employee theft coverage
You may suffer a loss if any of your workers/employees steal anything on the construction site.
Surety bonds can be taken to reimburse the loss when your employee does something like this while at work.
What are Surety bonds?
The surety bond provides a guarantee to the obligee that the principal will conduct themselves per the terms outlined in the surety bond.
Surety bonds are legally binding contracts that ensure obligations will be met between three parties:
The principal: whoever needs the bond
The obligee: the one requiring the bond
The surety: the insurance company guaranteeing the principal can fulfill the obligation
Functions performed by Contractor Surety bonds
Guarantee that the bonded project will be completed according to the terms of the contract and at the determined contract price;
Guarantee that the laborers, suppliers, and subcontractors will be paid even if the contractor defaults and can result in lower prices and expedited deliveries;
Smooth the transition from construction to permanent financing by eliminating liens;
Reduce the possibility of a contractor diverting funds from the project;
Provide an intermediary – the surety – to whom the owner can air complaints and grievances;
Lower the cost of construction in some cases by facilitating the use of competitive bids.
Types of Surety bonds
There are two main categories of surety bond:
Contract bonds guarantee a specific contract. Examples include Performance Bonds, Bid Bonds, Supply bonds, Maintenance Bonds and Subdivision Bonds. Commercial Bonds guarantee per the terms of the bond form..
When do you need Surety bonds?
Surety bonds are typically required for contractors who seek to work on government contracts. They are also required for persons and companies that are licensed by a governmental entity. Even when not compulsory, surety bonds make sense when a contract requires performance, because they help compensate obligees when principals fail to meet their contractual obligations. They do not make sense if the amount of possible damages is negligible.
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Already have Surety bonds? Switching is easy
It might be time to switch insurers whenever the service that your existing insurer provides doesn’t meet your needs. For example, if you have a poor claims experience or an unexplained rate increase, it might be time to consider other options
If you cancel a previous policy before a new policy is effective, you could run into some serious financial problems.
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