There are a number of industries that require their members or individuals to obtain a surety bond. These bonds are typically a three-party contractual agreement between the obligee, the principal and the surety company.
Probate bonds are required of administrators, executors, trustees and conservators to guarantee they will perform their duties honestly and responsibly. These are also known as fiduciary bonds.
A contract bond is one of the most common types of surety bonds that businesses need to obtain. It guarantees a project owner, usually referred to as the obligee, that a contractor will fulfill specific terms in their contracts. These bonds can help ensure that projects are completed to the customer’s satisfaction, and that any wages due to workers are paid in a timely manner.
The most common types of contract bonds include bid, performance, and payment bonds. All of these are required for different types of construction contracts, and they guarantee that the bonded contractor will follow specific terms set forth in their bond.
During the underwriting process for these security bonds, surety companies will consider the contractor’s financial strength, their backlog of jobs, and current job site progress as well as their historical job performance. The bond amount and the underwriting process can vary from bond to bond.
Bid bonds are typically required by construction firms as a prerequisite to submit a bid for work. These bonds guarantee that the bonded construction firm will perform the contract at the price they have quoted. Oftentimes, the bonds are only issued for very small amounts such as $2,000. As a result, they are less costly than the other types of contract bonds.
Performance and Payment Bonds are more common with large construction projects such as a new building or bridge. In these instances, a government agency is the obligee of the bond. These types of bonds guarantee that the contractor will complete the project to the specifications and requirements stated in the bond agreement, and that all wages and materials owed to workers are paid. Typical claims seen in these types of bonds involve extended delays of completion and abandonment by the contractor that cause the obligee to rescind the project contract.
Maintenance or Warranty Bonds are usually required for public improvement projects such as sewer lines and water mains. These bonds guarantee that the work will be done in a reasonable amount of time and that there will be no faults or defects in the finished product. These bonds are very similar to the performance bonds, but the responsibilities and duties of the bonded contractor differ.
Fidelity Bonds – Fidelity bonds protect a business and its clients from acts of dishonesty by an employee. They operate much like insurance, and in this way they are different from most of the other types of surety bonds.
Other Surety Bonds – This category is for all other surety bonds that do not fit into the License, Performance, or Court Bond buckets. These include such things as utility deposit bonds, environmental surety obligations such as landfill and closure/post closure bonds, and the popular business service bonds.
If you are unsure what type of surety bond you need, or would like more information about each of the above, please give us a call! Our experienced representatives are here to assist you with all of your bonding needs. We look forward to hearing from you soon!