If you work in some type of industry that provides a service to someone, you may have been told you need to obtain a surety bond, but you may be confused as to what, exactly, a surety bond is. A surety bond is a guarantee that the contractor, also known as the principal, will perform the job he's obligated to do, as well as pay any and all subcontractors. If the principal fails to follow through with the obligation they're promised to fulfill, any liability on the part of the principal is paid out by way of a surety bond. This article will provide you with a little bit of information on the types of surety bonds available.
A bid bond is a surety bond that will guarantee the owner of the project that the principal will honor its bid and will sign a contract to do the work if their bid is selected. If the principal fails to honor that bid, a lawsuit can be filed to enforce the bond.
A payment bond is a type of surety bond that will guarantee the owner of a project, and all subcontractors and suppliers, will be paid the money that is due and owing to them. The owner of the bond is the obligee and the subcontractors and suppliers are the beneficiaries, and they can both sue on the bond. The owner benefits from the bond because there is a guarantee that subcontractors and suppliers will be paid, subsequently guaranteeing they'll perform their job.
A performance bond is a surety bond that guarantees the owner of a project that the principal will complete the work contract according to all of its terms and conditions. If the principal defaults on the bond and is sued by the owner of the project, the surety bond will fund any amount the principal is held liable for. The surety can also choose to have the work completed themselves.
If you are unsure of the type of bond you should obtain for any project you are working on, it's best to consult with an insurance agency that specializes in surety bonds. These types of bonds can be very confusing; so it's best to get the advice of someone knowledgeable in the surety bond field. The right surety bond protects everyone that will have a hand in the project you are working on. Talk to experts like NFP, P & C, Inc. for more information.Share