A surety bond is 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 follow the law and the obligations of the contract. If the principal fails to perform in this manner, the bond will cover resulting damages or losses. Surety bonds provide financial guarantees that contracts and other business deals will be completed according to the agreed upon terms. Surety bonds protect consumers and government entities. When a principal breaks a bond’s terms, the harmed party can make a claim on the bond to recover losses.
The construction industry makes up a huge part of the surety bond market. Contract bonds generate approximately two-thirds of total surety premium written. Commercial bonds deter service industry professionals and businesses from taking advantage of consumers. Most commercial bonds are required as a part of a state’s licensing process. This is not an insurance policy. If the surety company pays out on the bond, you are obligated to pay the surety company back.
Contract or Constructions Bonds
The terms “contract bond” and “construction bond” are essentially two different names for the same thing and are used interchangeably. A contract bond guarantees contracts are fulfilled. If the contracted party fails to fulfill the terms listed on the bond, then the project developer can make a claim on the bond to recover financial losses. Project developers might require a number of different construction bond types throughout the duration of a project to ensure it’s completed according to the contract. Surety bonds are almost always required before work can begin.
The following are some of the most common types of contract bonds:
- Bid bonds
- Labor and material bonds
- License and permit bonds
- Mechanic’s lien – bond to discharge
- Performance bonds
- Supply bonds
- Utility payment bonds
- Payment bonds
- Contractor License bonds
Commercial bonds are typically purchased by companies and professionals who need surety bonds for purposes unrelated contracted work. Government agencies at both the state and city level require professionals in certain industries to post a surety bond before they can obtain a business license. Surety bonds guarantee that companies and business professionals will work ethically and according to the laws that regulate their industry. Commercial bonds are typically used to reinforce laws such as license and permit regulations.
Common commercial bond types:
- Bid, Performance and Payment, and Supply bonds
- Business Service bond
- License & Permit bond
- Notary bond
- Probate bond
- Regulatory and tax bonds
- Employee Theft bond
- Janitorial Service bond
Contact Linda A Christ Insurance Agency today!
Whether you’re an individual with a business seeking a particular type of bond, or run a business with a variety of bonding requirements, Linda A Christ Insurance can provide a surety program that suits your needs with pre-approval and quick bonding solutions. Call us today. We’ll work with you to find the best bond solution to meet your company’s needs.