If you run a contracting business, you’re going to come up against the requirement for surety bonding at some point in time. Whether it’s the U.S. Miller Act, any of the state Little Miller Acts, or local and regional requirements, being bonded is quite simply a necessity to keep your business operating and compete with other contractors.
Even so, many contractors are confused as to exactly what a surety bond is, how it differs from an insurance policy, what it protects and how it is used. See surety bonds explained, what they mean for you and your contracting business, and learn where you can go to get the best, fastest surety bond service.
Surety Bonds Explained
Surety bonds are a form of protection that a principal (contractor) acquires which guarantees that if they don’t meet one of the conditions of their contract, payment will be made. Anyone who is affected by such a failure will, then, be compensated for their loss. These people, the obligees, will be able to place a lien against the appropriate bond.
Unlike an insurance policy, a bond protects the people with whom you contract as opposed to protecting you, and unlike insurance a bond is effectively a loan. When you use your bond, you’re on the hook to pay it back.
The most common and universal type of bond is a performance bond. These bonds guarantee that you will complete the responsibilities of your contract. They cover your projected completion dates, your quality standards, design details, and all other aspects of your promised deliverables. If you don’t deliver on time and at high quality, your bond will compensate the obligee.
Most contractors work with subcontractors on a job, from workers you bring in to the vendors who supply your materials and equipment. When you fail to pay these people, they can place a lien against your payment bonds to make sure they get compensation.
Bid bonds, similar to performance bonds, assure your obligee that you will follow through with an agreed-upon condition. In this case it’s the bid proposal you offer. It also guarantees that if you can’t that you’ll follow through with an alternative that is mutually agreed upon. These bonds stop people from making frivolous bids and false starts in the process.
Subdivision and Site Improvement Bonds
There are times when a contract requires extra conditions that have to be met, which are beyond the normal project scope. These conditions may not be covered under the performance bond and have to be covered via a secondary bond. This is a subdivision bond or site improvement bond. These bonds cover things like code-compliance issues, gutters, curbs, sewers, signage, green spaces, drainage fixtures, and the like.
Working with the Right Surety Bonding Agency
If you are in need of having surety bonds explained in more detail, the right surety bonding agency is a must. National Surety Services, Inc., has been in the business of surety bonding for decades. We’re here to take the stress and confusion out of the process and get you the bonds you need. For more information, give us a call today!