What's a surety bond

Answer 1

a form of 'insurance' acquired by a contractor (usually required by an owner or entity engaging the services of a contractor) whereby, if the contractor defaults (i.e. is unable, for whatever reason, to complete the work that it contracted for) the surety will take over the completion of the project, sometimes using the contractor's own forces or, more commonly, engaging the services of another contractor to complete the work. = Answer == Bonding is frequently called ""reverse insurance". Insurance is intended to pay someone for damages by an event that, may or may not have any fault, but is essentially expected to possibly happen, (like a house fire). An insurance company expects to pay some losses - the risk of that loss, to the degree that it is more than the fee/premium charged, is shifted from the insured to the insurance company. Bonding on the other hand, is a way to assure payment (or performance of something) for an event that really should never happen. If payment/performance under a bond must occur, the Bonding Company will try and get paid by the one it bonded. It never agreed there should be or to accept any loss. Hence, along with a fee the company normally gets security/liens/mortgage that it feels is adequate to reimburse it for any amounts it pays. Bonds come in many, frequently specific & independent forms. For example, it is common that a building contractor will have to provide 3 different bonds in many jobs: Bidding, Performance, & Payment. The bid bond assures that if he bids to do a job - wins the bid - and then doesn't agree to to the job as bid, the one who was requesting the bid (and now has to go through the time and expense of redoing it all) gets compensated. The contractor may also have to provide a Performance bond, which basically means if he fails to complete the contract, (walks off the job, etc., ) and the buyer needs to get someone else to do it, there is compensation in the bond amount. This bond may even cover the warrenty period, so there is a way to assure the contractors 10 year guarantee, if say, he's gone then. (Sometimes, instead of paying, the Bonding Company will/must actually step in and hire another contractor to perform). There may be a bond required to assure that payments made to the general Contractor that should be paid to the sub contractors , suppliers or employees, are actually paid to those people. (If the contractor fails to pay a supplier/worker, those people actually have a lien against your property until they are paid, even if you paid the contractor). Hence, a bond is essentially that a large, capable organization (generally an insurance company), agrees that those taking on a responsibility are actually responsible, or the bonding Company will perform in its behalf or compensate....and then get renumeration from the one causing the problem. In most job situations, it means you are considered responsible to be trusted with money, (under what would be expected to be controlled guidelines of your employer). Just being able to be bonded for something, indicating another presumably large/reputable company will stand behind you, is a sign of quality and integrity.
A surety bond is a promise to pay one party (the obligee) a certain amount if a second party (the principal) fails to meet some obligation, such as fulfilling the terms of a contract. The surety bond protects the obligee against losses resulting from the principal's failure to meet the obligation.