Surety bonds are frequently used when a contract is signed, but they are something that is all too frequently misunderstood. A basic definition of a surety bond is that it is a legal contract that guarantees an agreement will be fulfilled. There are typically 3 people involved in such a process, the principal, the obligee, and the surety, which is an insurance company guaranteeing the principle. Each of those parties will have their own role in the process.
A surety bond may be required for a variety of reasons but in many cases, it is required by a government agency. The bond is established to protect both the government and the citizens that may be affected by the contract being signed. The principal would be responsible for paying the surety bonds upfront and after the contract is fulfilled, they would be reimbursed what they paid.
As a form of insurance, surety bonding is there to guarantee that the promises made in the contract are kept. If they aren’t kept, then a claim can be filed against the bond. The principle is expected to stick to the terms of the bond and if they don’t, they may be responsible for more than just the surety bond claim. There may be additional legal costs involved, and those would be the responsibility of the principal as well.
In most cases, this type of a bond will be tied to a specific contract. These are often referred to as a contractor bond and if the job is for more than $100,000, this type of bond is required by law. If the bond is not attached to a contract, it could be any number of different types of bonds. Court bonds, for example, are required by the courts but a fidelity bond is simply a type of insurance for your company. A license, or non-contract bond may sometimes be required if it is necessary to get a permit or license but it is typically tied to a contract.
At times, it may be possible to forgo this type of bond if you choose an alternative that is acceptable to everyone involved. It may be a matter of putting up the cash directly or providing a letter of credit from a financial institution. These types of agreements may be beneficial for those who are unable to provide a surety bond for one reason or another.
One thing that is important to consider is that there are differences from one state to the next. You can learn about those differences and get information about where to apply for pre-approved bonds at the Bonds Express website.
Bonds may seem rather simplistic if you are only looking on the surface but when you look at all that goes into them, you see that they are quite complex. Choosing the right bonding service can make a difference in both your ability to obtain the bond and to ensure that it is established properly so that everyone benefits from it.