What Is a Surety Bond?
A surety bond is a legally binding contract in which three entities are involved:
- The principal – the person who needs to fulfill the contract.
- The surety- the person who acts as a guarantor on behalf of the principal.
- The obligee- the person who owns the contract.
The surety extends credit to the principal so as to reassure the obligee that the principal fulfills their contractual obligation.
Who Needs a Surety Bond?
Many government contracts often require a surety bond, and there are several surety bond agents in Nassau County, New York. If you are a contractor and you want to get a government project, they would require you to have a surety bond before the project can be awarded to you.
Also, you would need a surety bond if you want to get a license. These specific types of bonds are called license and permit bonds. They serve as a pledge that you will faithfully and ethically fulfill all your business obligations.
Most of the time, cases of fraud are not covered by regular insurance. To protect your business from financial liabilities resulting from fraudulent activities, you can apply for a surety bond. We call this type of bond a fidelity bond, and it can protect your benefit or pension plans as well. Some fidelity bonds cover all employees, and some cover only a selection of employees. The exact terms will differ depending on the kind of fidelity bond acquired.
Having a concise knowledge of what each bond type entails will guide you on how to go along with the application of your surety bond.
Types of Surety Bonds
There are six different types of surety bonds when it comes to construction contracts, namely payment bonds, performance bonds, bid bonds, maintenance bonds, subdivision bonds, and supply bonds.
- Payment Bond: This type of bond ensures that suppliers and subcontractors are paid for all the work done during the execution of the project.
- Performance Bond: This bond ensures that the contract will be executed exactly how it is stated in the contract, with no additions or subtractions.
- Bid Bond: This bond guarantees that the contractor who won the bid for the construction contract will honor the terms of the contract after signing it.
- Maintenance Bond: This bond ensures proper maintenance of all the materials and the workmanship used to complete the project within a specific period of time. During that period, if the project is found to be defective, the bond amount can be used to pay for the necessary repairs.
- Subdivision Bond: Contractors are expected to renovate some structures within subdivisions, such as streets and sidewalks. However, if the contractor fails to do so, the bond amount can be used to complete the subdivision project appropriately.
- Supply Bond: This type of bond makes it a point of duty for suppliers to provide all the materials and equipment listed in the purchase order. If the supplier fails to deliver the supplies, the bond amount can be used to reimburse the purchaser for the resulting loss.
We at Northeastern Group Limited boast a great team of professionals that can advise you and guide you through the right surety bond. Book an appointment with us today! Contact us at 516-505-7700 for more details.
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