There are many times when a surety bond is required. A surety bond is an instrument whereby the obligee (the party requiring the bond) will be paid a sum up to the penal amount (the face amount) of the bond if certain conditions occur.
In the Surety world, there are three major categories of bonds—Commercial Surety Bonds, Contract Surety Bonds, and Court Bonds.
Contract Surety Bonds occur most often in the construction industry. Work performed using public funds to pay for the construction usually calls for a surety bond. However, surety bonds may be required for privately-funded projects as well.
Generally, there are two bonds required for publicly-funded projects. The first, a “bid” bond, is required in order to submit the bid. A bid bond says that the contractor is prepared to contract for the work at the stated price in the event the contractor is awarded the work.
The second bond is a performance bond. This bond states that the work will be performed in the manner stated and in the time frame promised. If the work is not performed how or when promised, the surety will pay the obligee up to the face amount of the bond.
Contractors often times need a bonding program. However, eligibility for a bond is not automatic. A surety’s selectivity and oversight reflects the high stakes involved in placing Contract Surety Bonds. The relationship between the contractor and the surety is formed through the surety bonding agent and includes quarterly review of the contractor’s work-in-progress, as well as the contractor’s financial condition. The deeper the surety’s understanding of the contractor’s financial condition, experience of the type of work to be contracted for, and personnel available to do the work, the greater bonding capacity the surety will be willing to provide.
Let Fulcrum Point Insurance and Bonding help you secure a bonding program that allows you to bid on the next great project.