Collin McGorty No Comments

Three Myths about Surety Bonds

A surety bond is a three-party contract between a principal (business owner purchasing bond), an owner (state agency requiring bond) and a surety (the bond agency). For the customer, the surety serves as a source of insurance in case of work unfinished. For the business owner, it functions as a line of credit in business matters and as a source of reliability for the customer in choosing the company.

If the surety is defaulted on, the bond company is then required to pay a lump sum to the customer that the business has left with unfinished work. Here are some common misconceptions that you may be unaware of.

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Contractors Insurance No Comments

What You Need to Know About Contractor Bonds

Contractor bonds, or surety bonds, are agreements where a surety company assures the owner of a company or project that a contractor will complete an arranged construction contract. These are an excellent solution for making sure that there is not only assurance, but financial security in place when it comes to the work in question and the pay owed to workers, suppliers and subcontractors involved in the job. Here are the things you need to know about contractor bonds.


Types of Contract Bonds

There are three general types of contract bonds. Each has its own use and purpose in a contract job.


  • Bid Bonds ensure that the bid is being entered into in good faith and offers assurance that the performance and payment bonds will be delivered.
  • Performance Bonds provide insurance against financial loss if the contractor does not perform up to the agreed upon standards.
  • Payment Bonds detail the labor force, subcontractors and suppliers that will be paid throughout the course of the job.


Surety and Insurance

In most cases, the surety company that engages the contract bond is a division or subsidiary of an insurance company. These agreements, like insurance policies, are a form of risk management that is under the authority of the state’s insurance department.

The main difference is that insurance exists to protect against things that may happen, where the surety company creates agreements regarding things that are supposed to happen. These protect project owners from loss, should contractors fail to deliver.


Required Agreements

Surety bonds have been required by the United States government since 1893 for all public works contracts. The same kind of legislation has been enacted at the state and local level for almost every state.

Assurances Offered

A surety company conducts a thorough check on the contractor so that they can offer assurance that the contractor can see the project through from start to finish. Some of the things the contractor checks include are:


  • Reputation and references;
  • Capability to meet all job requirements;
  • Experience and expertise;
  • Possession of equipment or the ability to get the equipment needed;
  • Financial viability to see the project through; and
  • Credit history, rating and relationship with a bank.


If the Contractor Defaults

Defaults happen, no matter how carefully a contractor is investigated. If this occurs, the project owner will declare the default and the surety company will investigate the situation before settling the claim. The contractor is required to obtain any bonds that are specified in the agreement, and the surety company will use these bonds to review their options to satisfy the claim. Among the possibilities are:


  • The job could be re-bid;
  • The contractor may be replaced;
  • Financial assistance may be offered to the existing contractor; and/or
  • The bond’s penal sum could be paid off.


In the end, contractor bonds protect against many risks through rigorous background evaluation and an ironclad agreement regarding the completion of responsibilities by the contractor. They are an important element of risk management in any major construction project. Do you have any experience with these sorts of agreements? Leave a comment and let us know!

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Collin McGorty No Comments

Surety Bond Types – How are they different?

Types of Surety Bonds

There are a number of surety bonds out there in the market, each one specifically designed.  They all have different obligations and forms, so it isn’t surprising to learn that even the most experienced contractors sometimes forget how each surety bond differs.  Let’s dive into some terminology and clear up some common misconceptions about surety bonds and what they cover.

License Bonds

A license bond just guarantees that the person doing the work will abide by all the right laws and regulations that are set by the obligee, which is usually a government entity.  Permit bonds grant contractors some sort of privilege.  The different types of license and permit bonds include, but are not limited to, electrician’s license, plumber’s license, general contractor’s license, driveway permit, sign permit, and sales tax.  Most contractors post bonds as part of their licensing.  This ensures that they will be following the electrical codes for the city or town which he does work in.

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Public Official Bonds

Another type of bond is that which protects government officials in the event that they cannot perform their duties.  People such as treasurers, Tax Collectors, Peace Officers, Judges and Notaries are eligible to get public official bonds.  An example of a professional getting a public Official Bond would be a legislator who wants to protect himself from a lawsuit if he is unable to make due on promises.

Court Bonds

Finally, there are probate and other court bonds.  These guarantee that honest accounting practices will be upheld by fiduciaries and their trustees.  These bonds are required by courts.  Type of these bond are administrator, guardian, and trustee.  In addition to these court bonds, a bankruptcy or equity bond might be required of an appointed fiduciary for the sale of real estate or for property in foreclosure.

There are many surety bond types, all are meant to protect the parties involved.  Be sure to ask your insurance broker which type of surety bond will be right for you.