As a contractor, you will probably be required to provide a Bid Bond, Performance Bond or some other type of Surety Bond. This is an important part of your Business Insurance and we have access to a variety of insurance carriers to provide these. Call us today to discuss any Surety Bond needs you may have!
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What is a Surety Bond?
When entering into a construction contract, often times the primary concern is whether or not the contractor is competent and capable of doing the work. If problems arise, however, it is important to know that one can collect any damages to which one is entitled. An award for breach of contract does little good if the contractor has no assets to satisfy the claim. A bond can provide financial assurance.
A surety bond is a written agreement that usually provides for monetary compensation in case the principal fails to perform the acts as promised. There are many different types of surety bonds, but the two general categories are contract and commercial surety bonds. Surety bonds provide financial security and construction assurance on building and construction projects by assuring project owners that contractors will perform the work and pay certain subcontractors, laborers, and material suppliers. A bond can also help protect an owner from liens against the owner's property if the contractor fails to pay workers or suppliers.
There are three types of contract bonds: bid bonds, performance bonds and payment bonds. A bid bond is an obligation undertaken by a bidder promising that the bidder will, if awarded the contract, enter into the contract and furnish the prescribed performance and payment bond(s) within a specified period of time. A performance and/or payment bond is specifically intended to cover a particular contract. A performance bond covers the contractor's actual performance of the contract. It guarantees payment -- up to the penal sum -- of such things as cost of completion or cost to correct deficiencies which are the responsibility of the contractor. A payment bond is intended to pay laborers, suppliers and other contract-related costs which the contractor owes to third parties. The benefit to a private (as opposed to public, i.e., governmental) Obligee is that it provides a source of funds for those who might otherwise be able to enforce a lien against an owner's property.
Performance and payment bonds may be two separate documents, each with its own penal sum, or they may be combined in one document with a single penal sum. The penal sum is usually the contract amount at the time the bond is executed. The penal sum usually does not increase when items are added that change the contract price.
It is wise to be sure that the payment bond's language explicitly gives such persons a direct right to claim against the bond. Otherwise the bond may be interpreted to be an Indemnity bond. An Indemnity bond reimburses only the Obligee for loss sustained by the Obligee due either to the contractor's failure to perform the contract or failure to pay persons with lien rights. Since a supplier or laborer cannot claim directly against an indemnity bond, an Obligee runs a greater chance of the inconvenience of a lien foreclosure suit. A payment bond lessens this chance, although an owner can never force a lien claimant to look to the bond instead of the owner's property.
Commercial Surety Bonds
Commercial surety bonds are needed for a wide range of businesses from cleaning service companies and motor vehicle dealers to convenience store owners and school board members. Typically required by law or regulation, this general classification of bonds includes license and permit bonds, public official bonds, notary bonds, notary errors and omissions bonds, federal bonds and other miscellaneous surety bonds.
Court Surety Bonds
If you’re involved in the court system as either a defendant, plaintiff or fiduciary, chances are good you’ll be required to obtain a court surety bond. As the name suggests, court bonds guarantee that a person or entity will faithfully perform the duties prescribed by law and will demonstrate financial responsibility for the benefit of another until the final outcome of a court’s decision. Commonly requested court surety bonds include appeal bonds and probate bonds.
Although most businesses feel their assets are secure, employee theft can and does occur. Fidelity bonds protect against employee theft, whether from you or one of your customers.
The above summary is not a policy and is only intended as a brief presentation of available coverages. The actual insurance policy will provided full details of all benefits, conditions and exclusions.