There are several types of bonding insurance. A surety bond is issued by a special surety insurance company called a surety, which acts to make sure that a contract is correctly completed or services are adequately provided. Common in construction and similar fields, a surety’s role is to act as a third-party and step in if a contract isn’t completed or doesn’t meet quality. For example, if a contractor abandoned a project because a higher-paying one became available, a surety would hire a new contractor to finish the work.
Despite the fact that the bond acts to protect the customer in a hiring arrangement, the contractor does receive some benefit from purchasing the bond, because it makes his business seem more reliable and trustworthy, due to the financial backing if he fails to meet requirements.
So while bonding acts as a business advantage for a contractor, it acts more like an insurance for a customer of that contractor.
This type of surety bond is required by government, either federal, state, or municipal, as part of the licensing process for a business. License and permit bonds guarantee a licensed business will act according to regulations and laws for a given profession. Common professions requiring a license and permit bond are contractors, electricians, plumbers, and non-resident professionals.
Bid bonds guarantee the awarded contractor of a project will sign the contract per the bid submitted. This type of surety bond assures a project owner that the contractor submitting a bid can complete the project.
This type of surety bond ensures a contractor will pay the subcontractors, material costs, and labor accrued on a project, per the contract. Payment bonds are particularly important for jobs where
mechanic liens cannot be issued. These bonds protect the subcontractors and laborers.
Payment and performance bonds are usually issued together; however, they are not the same. Performance bonds are a type of surety bond that guarantees satisfactory completion of a project.
These bonds protect the project owner against a contractor’s failure to complete a project as agreed.
Maintenance bonds protect against financial losses due to faulty workmanship or materials used in a construction project.
Financial Responsible Officer Bond
The owner/officer, primarily in charge of the financial responsibility of a company, may be required to carry a Financial Responsible Officer bond. This bond ensures officers with financial responsibility of a company will adhere to applicable laws.
Right of Way Bonds
These bonds are required when performing work on a city road, right of way, or easement. This bond may be required prior to obtaining a Right Of Way permit.
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