Surety Bonds
Surety Bonds are three-party agreements in which the bonding company (the surety) provides credit surety for the second party (the principal) guaranteeing to a third party (the obligee) the fulfillment of a contractual obligation to the oblige. Construction bonds guarantee the job completion and payment of labor and supplies to the owner (obligee). The Surety bond also guarantees that the work performed shall be completed in a workman like manner and meets or exceeds plans and specifications. The work is also guaranteed to the owner for two years subsequent to completion.
Obligee: The party (person, corporation, or government agency) to whom a bond is given. The obligee is also the party protected by the bond against loss for non payment of job related costs and a guarantee that the work is completed satisfactorily.
Principal: The individual who is required to be bonded by the obligee. This is the person or company who is to fulfill the contract.
Surety: A person or institution (insurance company) that guarantees the faithful performance of another person or company or government entity.
What is a Bid bond?
A Bid bond provides financial assurance that the bid has been submitted in good faith being issued. A Bid bond is guaranteeing that the contractor will enter into the contract at the bid price. It implies that the contractor will be able to provide Performance and Payment bonds covering the contract bid on. If the contractor does not enter in to the contract a mandatory penalty maybe forfeited by the contractor and is guaranteed payment of that penalty to the oblige by the bid bond.
What is a Performance bond?
A Performance bond may be required by the obligee (owner) to the contractor (principle) to guarantee faithful performance and work of good quality. If the contractor is unable or unwilling to complete the contract, the surety will complete the contract for the owner.
What is a Payment bond?
A Payment bond assures that the contractor will pay the suppliers, laborers, and subcontractors working on the bonded contract project.
What is Maintenance bond?
A Maintenance bond guarantees against defective workmanship and materials to the obligee for a specific period of time.
What is a License and Permit bond?
State or local laws require License and Permit bonds to engage in a certain business. Examples include; auto dealers, contractors, electricians, plumbers, securities dealers, and employment agencies. These bonds are for monetary assurances to the customers the business serves.
What is a Judicial and Probate bond?
Judicial and Probate bonds, also known as Fiduciary bonds, secure or guarantee the faithful performance of fiduciaries and their compliance with court orders. Examples include; people who serve as: administrators, executors, guardian, trustees of wills, receivers, and masters.
Examples of Judicial Proceeding Bonds, or Court Bonds, include; appeals, injunctions, attachment, indemnity to sheriff, and admiralty.
What is a Public Official bond?
Public Official bonds assure the faithful performance, the duty of a public official. Examples include; treasures, sheriffs, judges, clerks, notaries, and tax collectors.
What does a Surety Bond Cost?
This is a commonly asked question, but is difficult to answer because surety bond premiums vary by Surety Company and by the type and value of project bonded. Surety bond premiums can range from half of one percent to two percent of the contract amount, and is based on the experience and credit of the contractor and the size, type, and duration of the project to be bonded
Some bonds incorporate more than a single obligation; for instance, a Performance bond usually includes a Payment bond and Maintenance bond. These bonds are typically priced based on the value of the contract being bonded. If the contract amount changes, the premium adjusts to reflect the change.