What Are Surety Bonds
A surety bond is a promise to be liable for the debt, default, or failure of another. It is a three-party contract by which one party (the surety) guarantees the performance or obligations of a second party (the principal) to a third party (the obligee).
There are two broad categories of surety bonds: (1) contract surety bonds; and (2) commercial (also called miscellaneous) surety bonds.
Contract Surety Bonds
Surety bonds that are written for construction projects are called contract surety bonds. A project owner (the obligee) seeks a contractor (the principal) to fulfill a contract. The contractor, through a surety bond producer, obtains a surety bond from a surety company. 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.
There are four types of contract surety bonds:
|
When do I need a contract surety bond? Any federal construction contract valued at $150,000 or more requires surety bonds when a contractor bids or as a condition of contract award. Most state and municipal governments have a similar requirement. Many private owners also elect to require contract surety bonds.
Commercial Surety Bonds
Commercial surety bonds cover a very broad range of surety bonds that guarantee performance by the principal of the obligation or undertaking described in the bond. They are required of individuals and businesses by the federal, state, and local governments; various statutes, regulations, ordinances; or by other entities.
Commercial surety bonds can generally be divided into five types of bonds:
|
© 2021 Copyright