Contract Surety Bonds
Contract bonds, used primarily in the construction industry, are a guaranty from a Surety to a project’s owner (Obligee) that a general contractor (Principal) will adhere to the provisions of a contract.
Commercial Surety Bonds
A commercial surety bond represents a broad range of bond types. into four sub-types: The bond types are commonly divided into four categories- license and permit, court, public official, and miscellaneous.
- License & Permit- typically required by certain federal, state, or municipal governments as prerequisites to receiving a license or permit to engage in certain business activities.
- Court- broken down into judicial bonds and fiduciary bonds. Judicial bonds arise out of litigation and are posted by parties seeking court remedies or defending against legal actions seeking court remedies. Fiduciary bonds are filed in probate courts and courts that exercise equitable jurisdiction; they guaranty that persons whom such courts have entrusted with the care of others’ property will perform their specified duties faithfully.
- Public Official- guarantees the honest and faithful performance of those people who are elected or appointed to positions of public trust.
- Miscellaneous- Miscellaneous bonds are those that do not fit well under the other commercial surety bond classifications. They often support private relationships and unique business needs.
Business Service Bonds
Business service bonds are surety bonds which seek to safeguard a bonded entity’s clients from theft. These bonds are common for home health care, janitorial service, and other similar services who routinely enter their clients homes or businesses. A business service bond allows the bonded entity’s client to claim on the surety bond when the client’s property has been stolen by the bonded entity. However, the claim is only valid if the bonded entity’s employee is convicted of the crime in a court of law. Additionally, if the surety company pays a claim on the bond, they would seek to be reimbursed by the bonded entity for all costs and expenses incurred as a result of the claim.
Provides financial assurance that a bid submitted by a contract has been done so in good faith. This can include that a contractor will enter into a contract at the amount bid and will provide the appropriate performance and payment bonds. These bonds are used by obligees (project owners) to pre-qualify contractors submitting bids / proposals.
Guarantees performance of the terms of a contract. These bonds frequently go hand in hand with payment bonds (labor and materials). Bonding ultimately aims to protect the project owner from financial loss should the contractor fail to perform the contract in accordance with its terms and conditions.
A payment bond covers common costs associated with a construction project like paying subcontractors, laborers, and purchasing materials. Payment bonds are issued for the protection of those supplying labor and/or materials to a particular bonded project.
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