What is a surety bond?
A surety bond is a written agreement where one party, the “Surety,” obligates itself to a second party, the “Obligee,” to answer for the default of a third party, the “Principal.”
Three parties are involved in a surety guarantee:
- Principal: entity required to post bond.
- Obligee: entity requiring Principal to be bonded.
- Surety: provides financial guarantee to Obligee on behalf of Principal.
For example, a surety bond ensures contract completion in the event of contractor default. A project owner (the Obligee) seeks a contractor (the Principal) to fulfill a contract. The contractor obtains a surety bond from a surety company (the Surety). If the contractor defaults, the surety company is obligated to find another contractor to complete the contract or compensate the project owner for the financial loss incurred.
What a surety bond is not: insurance!
A false misconception is that a surety bond is insurance and something you “purchase”. This is not true. Instead, bonds are financial guarantees and are not purchased. You qualify for bonding and then pay a premium to have these bonds provided.
Main types of contract surety bonds:
- Bid bonds provide financial assurance that the bid has been submitted in good faith, and that the contractor intends to enter into the contract at the price bid and provide the required performance and payment bonds.
- Performance bonds protect the owner from financial loss should the contractor fail to perform the contract in accordance with its terms and conditions.
- Payment bonds guarantee that the contractor will pay certain subcontractors, laborers, and material suppliers associated with the project.
- Maintenance bonds normally guarantee against defective workmanship or materials for a specified period.
- Subdivision bonds guarantee to a city, county, or state that the principal will finance and construct certain improvements such as street, sidewalks, curbs, gutters, sewer, and drainage system.
How to get a bond
To qualify for bonding, we submit a detailed proposal to the bond company that includes information such as your job history, financial strength, and depth of management. The stronger these are, the more bonding you qualify for.
To get started, call us today to discuss your needs. We can answer any other questions you may have, and walk you through each step of establishing strong bonding. We’ll collect information for the bond request, which varies based on the needs of the contractor. We will also make recommendations to ensure you qualify for as much bonding as possible.
We know being exposed to surety bonds for the first time can be overwhelming. Rest assured that we are here to walk you through the process step by step to ensure you establish the strongest possible bonding.
Please see our Download Forms page to select the forms you need. Or, you can call us and we can email them to you. If this is your first time being exposed to surety bonds it can be overwhelming. Rest assured we are here to walk you through the process to establish strong bonding for you!