What is it
A surety bond is defined as a three-party agreement that legally binds together a principal who needs the bond, an obligee who requires the bond and a surety company that sells the bond. The bond guarantees the principal will act in accordance with certain laws. If the principal fails to perform in this manner, the bond will cover resulting damages or losses.
why do i need it
Surety bonds work more like credit than insurance. ... Contract surety bonds are commonly used in the construction industry to guarantee the performance of a contract. They include bid, performance and payment, and supply type obligations. A bid bond provides a way for project owners or contractors to pre-approve a bidder.
What types are surety bonds are available?
1. Bid 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, which protect the owner from financial loss should the contractor fail to perform the contract in accordance with its terms and conditions.
- Payment bonds, which guarantee that the contractor will pay certain subcontractors, laborers and material suppliers associated with the project.
- Maintenance bonds, which normally guarantee against defective workmanship or materials for a specified period.
- Subdivision bonds, which 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 systems.
2. Commercial Surety bonds:
- License and permit bonds, which are required by state law or local regulations in order to obtain a license or permit to engage in a particular business, e.g. contractors, motor vehicle dealers, securities dealers Blue Sky bonds, employment agencies, health spas, grain warehouses, liquor and sales tax.
- Judicial and probate bonds, also referred to as fiduciary bonds, secure the performance on fiduciaries’ duties and compliance with court order, e.g. administrators, executors, guardians, trustees of a will, liquidators, receivers and masters. Judicial proceedings court bonds include injunction, appeal, indemnity to sheriff, mechanic’s lien, attachment, replevin and admiralty.
- Public official bonds, which guarantee the performance of duty by a public official, e.g. treasurers, tax collectors, sheriffs, judges, court clerks and notaries.
- Federal (non-contract) bonds are those required by the federal government, e.g. Medicare and Medicaid providers, customs, immigrants, excise and alcoholic beverage.
3. Miscellaneous bonds, e.g. lost securities, lease, guarantee payment of utility bills, to guarantee employer contributions for Union fringe benefits and workers compensation for self-insurers.
How much does a surety bond cost?
The costs for a bond are usually a percentage of the full bond amount and based on applicant's credit history.
How does a bid bond work?
Bid bonds are used to bid on public jobs. The bid bond guarantees that the bidder is able to secure a performance bond if and when they are awarded the bid for the job.
Will my personal credit score affect my surety bond cost?
The underwriting approval and pricing of a bond is based on your credit score.