BONDING
GET THE BEST BONDING PROGRAM FOR YOUR CONTRACTING BUSINESS
WHAT IS A SURETY BOND?
A surety bond is a contract involving three parties: the person or entity performing the service (principal), the person or entity for whom the service is performed (obligee) and the entity that guarantees the principal will perform as agreed (surety). In the event of a loss or failure to perform, the surety bond pays the obligee, not the principal.
A guarantee of the performance of a contractor. In general, contract surety bonds are used to guarantee that the contractor will perform according to the specifications of the construction contract. If the contractor fails to perform according to contract, the insurance company is responsible to the insured for payment, up to the limit of the bond, which is usually for an amount equal to the cost of the construction project. The insurance company then has recourse against the contractor for reimbursement.
WHAT IS A DEVELOPER/SUBDIVISION BOND?
A subdivision bond guarantees that builders, developers, and individual landowners complete improvements made to a subdivision property. This bond, required by local authorities, usually guarantees that the improvements will be made at the expense of the developer and principal of the bond.
WHAT IS A COMMERCIAL BOND?
Commercial bonds come in a wide variety of specialties. These bonds are most frequently required for business owners who must be bonded in order to legally operate under their state’s guidelines. Most business owners will require at least one bond in their possession to obtain a business license.
WHAT IS A LICENSE & PERMIT BOND?
A License & Permit Bond is a sub-category of bond types. They fall under the commercial category of bonds and guarantee the principal will abide by the terms of the license they file the bond for. Some of the most popular License and Permit bonds are: Auto Dealer Bonds, Contractor License Bonds, Mortgage Lender Bond, Mortgage Broker bonds, etc.
CONTRACTOR LICENSE BONDS
Contractor license bonds are agreements, similar to insurance policies, which guarantee that a contractor will comply with the regulations that apply to their particular contractor license. The main difference between this and an insurance policy is that while the contractor is the one who purchases the bond, the bond is designed to protect the general public and anyone that the contractor does business with. Typically, insurance companies offer bonds, even though they are not quite the same as insurance policies.
The cost of the bond to the contractor usually depends on the contractors historical track-record of income and their credit score. And the better track record a construction specialist has, the less expensive the bond will be for them.
Certain states, industries, and types of construction contracts will require contractors to carry a contractor license bond, and in some cases additional bonds will be required.
CONSTRUCTION BONDS
Construction bonds, also known as contract bonds, exist to “guarantee” certain aspects of a contract or construction project, and ultimately that the project contract is guaranteed to be completed if accepted. There are several types of contract bonds, which are:
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Bid bonds – to guarantee that bid proposals on projects are serious and that contractors can financially support the project if their bid is chosen.
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Performance bonds – to ensure that the contractors adhere to the standards and finish the project laid out in the project contract.
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Payment bonds – to guarantee that the contractor can provide payment to subcontractors, laborers, and suppliers.
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Maintenance bonds – to protect the project owner from defective workmanship or fault materials for a length of time after the contractor’s work is completed; also known as warranty bonds.
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Subdivision bonds – to guarantee to a city, county, or other local municipality that the bond-holder will develop the property in accordance with local guidelines and requirements.
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Site improvement bonds – to provide the same guarantees as a subdivision bond, but only applies to existing structures that are being improved on.
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Supply bonds – to provide assurance that suppliers will deliver materials, supplies, etc, as contractually specified.
WHY YOUR BUSINESS NEEDS A SURETY BOND
WHY YOUR BUSINESS NEEDS A SURETY BOND
If you are a contractor, manufacturer, or supplier, you may be contractually obligated to maintain a surety bond to guarantee your performance. For example, if you are a paving contractor and bid for the paving at your local town hall, typically you are required as part of the bid and contract process to obtain a surety bond that will pay the municipality if you fail to complete the contract. The municipality can then use the proceeds to pay another contractor to finish the job.
In conclusion, surety bonds play an important role in protecting project owners and contractors and qualifying sub-contractors. While these three-party contractual agreements can help assure timely and proper completion of construction projects, they are not appropriate for every situation or project.
WHAT YOU NEED TO KNOW ABOUT CONTRACTORS BONDS
Contract bonds are required if you want to perform work on public projects (and some private as well) to ensure jobs will be completed properly. They can be required by the owner themselves or a general contractor that hired you as a sub-contractor.
Bid Bond - Allows you to bid on bonded jobs and protects the public.
Performance Bond - This lets you perform work on a project once you are awarded the job.
Payment Bond - Ensures that you’ll pay all laborers, sub-contractors and suppliers.
Maintenance Bond - Allows you to work on a job that requires a warranty on your workmanship.
Supply Bond - This allows you to work on projects that require you to deliver materials.
BONDS FAST AND EASY
Here at ISOM Brokerage, we simplify and expedite the process of acquiring a Bond and also work hard to meet your specific requirements. Our knowledge in the industry along with our contacts and affiliates allow us the ability to make the Bonding process a fast and easy. Call us or send us an email requesting help from one of our Brokers.
