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 Jessica
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Posted: Mon Mar 06, 2006 4:18 am Post subject: Types of surety bonds and how to obtain them
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A surety bond is a written agreement using which one party, the surety obligates itself to another party, the obligee. The bond is such that the surety has to answer the obligee for the default of a third party, the principal. There are in general two types of surety bonds. These include:
Contract Surety Bonds: These bonds provide financial security and construction assurance on building and construction projects. Such bonds ensure that the contractor (principal) will be performing the work and pay certain subcontractors, laborers and material suppliers.
Contract Surety Bonds are of the following kinds:
- Bid bonds:
These assure that the bid has been submitted in good faith. It implies that the contractor wishes to enter into the contract at the price bid, and provide the performance and payment bonds.
- Performance bonds:
It is the performance bond that protects the owner from monetary losses. The losses may occur if the contractor fails to fulfill the terms and conditions of the contract.
- Payment bonds:
These assure that the contractor will be paying the subcontractors, laborers and material suppliers concerned with the project.
Other bonds included within this category are the maintenance and subdivision bonds. The maintenance bonds guarantee against defects in the construction and the required materials. The subdivision bonds assure that the contractor will finance the construction of improvements like gutters, drainage systems, etc.
Commercial Surety Bonds: It is through this bond that a principal guarantees the performance of his obligations.
Commercial surety bonds include the following:
- License and permit bonds:
These are required by the state law in order to carry out some business, for example, contractors, etc.
- Judicial and Probate bonds:
These fiduciary bonds secure the performance on fiduciaries' duties and compliance with court order. These bonds include injunction, appeal, mechanic's lien, etc.
- Public official bonds:
These bonds guarantee the performance of duty by the public official for example, treasuries, tax collectors, and notaries.
Other commercial surety bonds are those required by federal government and miscellaneous bonds like lease, guarantee payment of utility bills, etc.
Bond producers known as agents and brokers issue surety bonds. The producers work in agencies specializing in surety bonds or in insurance agencies dealing with surety bonds. It is the surety bond producer who matches a contractor with the surety company. The company should get a license from the insurance department of one or more states. It may be the state where the company operates or in which the obligation that the bond guarantees is performed.
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