Construction Surety Bonds
As an independent contractor or builder, most likely you are well versed with surety bonds, especially License and Permit Bonds. Typically, the license and permit bond are a requirement by the township or state as a way of ensuring that the services that you offer are completed according to the set standards.
What to Know about the Surety Bonds
It is a requirement by the federal, state or municipal government that the construction and contracting businesses have a license and permit bond. These bonds are a form of a guarantee from a surety which in most cases is an insurance company, to the government and its constituents that your business will comply with an underlying state and local law relating to your field of specialization such as building codes and safety regulations.
If, for instance, your company wins a bid to build a framework for a new school, usually, you will have to buy a surety bond that will pay the school if you don’t complete your contract to the end or if your performance was not up to code. The school will then use the money to hire and pay another builder or contractor to do the Job. Meanwhile, you will be held responsible for the reimbursement by the insurance company paying the money.
Siignificant Facts about Surety Bonds
The contracting and construction license bonds and permit bonds will always involve three parties: The Obligor or the company providing the bond; the oblige or the client requiring the bond; and the principal who is the contractor or builder in need of the bond.
By entering a license or permit bond, you are making a promise that you will perform work and adhere to state or town regulations. The oblige is a party in this agreement as they pay you to perform the work. If you fail to carry out the agreed work as required by the contract, that is when the surety or obligor steps in and pays the oblige.
A license or permit bond differs from other business insurance contracts in that it requires three parties instead of two. For the contractor, the primary difference between typical insurance and a bond is that the surety’s bond is to the oblige rather than the contractor even if he pays for the bond.
The the fact that surety claims are not as a result of accidents but a failure to complete a project according to the contract terms, the surety or insurer has a responsibility towards the client to ensure that they prequalify the contractor for the task. To guarantee your performance and integrity to the client the bail will carefully evaluate the bond history and creditworthiness of the contractor.