Surety bonds are a part of everyday life. Many individuals don’t understand the concept of bonds and how they are used to protect parties entering into a contract with one another. In basic terms a surety bonds are a binding legal agreement that offer financial guarantees to the parties involved in a multitude of contracts. Surety bonds state that one party, known as the surety is obligated to a second party, the obligee , in case of a default by the third party, the principal.
Contract surety bonds offer both financial security and construction assurance on projects both building and construction. Contract surety bonds assure the project owner that the contractor will meet the requirements set forth in the contract. If the contractor fails the project owner the surety company will cover the contract requirements so that the project owner is not at risk of loss. The surety offers a guarantee that the contractor will perform the job stated while meeting their financial obligations to subcontractors, material providers and employees.
Bid bonds ensure that a contractor submits a bid that is intended to meet the needs of the contract. The price of the bid that is submitted covers the financial obligations of performing the work as stated in the contract while covering the expenses on their end.
Performance bonds ensure the project owner is covered from loss if the contractor fails to perform the contract as stated and agreed upon.
Payment bonds are in place to make sure that the contractor is liable for the expenses to subcontractors, laborers and materials related to the contract that was entered into.
Maintenance bonds protect project owners against defects in materials or workmanship for a specific, agreed upon period of time.
Subdivision bonds ensure cities, counties and states that the principal, contractor of a subdivision, will financially cover and construct improvements within the sub like streets, sidewalks, curbs, street gutters, and more to make sure the sub meets stated requirements.
License and permit bonds are obtained to allow certain businesses to do business. An example of these bonds include: construction bonds, motor vehicle bonds, employment agency bonds and more.
Fiduciary bonds secure that administrators, executors, guardians and such will perform duties in line with court stated orders.
Different bonds are used in special situations to guarantee that contracts or duties are performed as contracted. Many people confuse insurance and bond however they are completely different. Insurance is used to protect individuals or businesses from themselves or others where as bonds are used to make sure expectations are met by others. Both protect against loss of finances.