A surety bond is a contract involving three parties:
Principal
the person or entity performing the service
Obligee
the person or entity for whom the service is performed
Surety
the entity that guarantees the principal will perform as agreed
In the event of a loss or failure to perform, the Surety Bond pays the obligee, not the principal. Surety Bonds work more like credit than insurance.
Surety bonds consist of two types: Commercial and Contract surety bonds.
Commercial surety bonds, in most cases, are easier to obtain as they typically require only a signed application and current financial statement.
The second type of surety bond, Contract, is the form you are most likely to encounter in large construction projects, particularly when public entities are involved.
Contract surety bonds are commonly used in the construction industry to guarantee the performance of a contract. They include bid, performance and payment, and supply type obligations.
- A bid bond provides a way for project owners or contractors to pre-approve a bidder. The bond guarantees that if the low bidder wins the project, they will sign the contract and obtain the required performance and payment bonds.
- A performance and payment bond guarantees the low bidder will complete the contract and pay all subcontractors and vendors.
- A supply bond guarantees that a commodity will be provided as ordered, at a certain place and time, for an intended purpose.
For more information or assistance with bonds, give us a call at (877) 725-1800.
