Surety Bonds: What Every Project Owner Should Know

Insurance Blog

Surety bonds are a guarantee that a large construction project will be completed, even if the construction company working on that project (called the principal) defaults on its obligations. Knowing and understanding the details of the surety bond for your large project will ensure that your project is completed in the manner promised to you.

Different Types of Surety Bonds Offer Different Types of Protection

There are different types of surety bonds that ensure principal performance in different ways.

  • Bid Bond. A bid bond is a deposit made by the contractor who bids on a project. This bond is returned to the contractor after the obligations of the contract are fulfilled. The bid bond helps to ensure that the contractor awarded the contract will fulfill the obligations of a project. 
  • Performance Bond. The performance bond offers you or your company (known as the obligee) protection from financial loss, should the principal contractor fail to meet the obligations of the contract. 
  • Payment Bond. The payment bond ensures that the principal will pay its workers and subcontractors. 

Surety Companies Have Strict Standards

Surety bonds are often issued by companies that are subsidiaries of insurance companies, however, surety policies are not themselves insurance policies. Surety bonds represent a promise that a project will be completed, or if not, compensation will be awarded. Surety companies evaluate and prequalify every contractor they back before they issue a surety policy. This ensures that contractors backed by surety policies are dependable and stable business owners. Contractors must have a reputation for excellence before they are able to take out a surety policy. 

Surety Bonds Change With the Project

The premium of the surety bond is dependent on the contract amount. If the amount of the contract changes before or during the project, then the premium for the bond will change as well. Surety bonds last for the duration of the project.

Surety Bonds Ensure Performance

Between 2002 and 2004, over 28% of construction companies failed and went out of business. Surety bonds will ensure that if your project's contractor fails to complete your project for whatever reason, your company's investment will be protected and the project will see completion.

Given the high expectations and standards of surety companies, requiring a surety bond for a project will guarantee completion of a project on multiple levels. Companies making a long-term investment in a large construction project can benefit from surety bonds in a variety of ways. If your company is undertaking a large construction project, contact a surety company, like Hale & Associates Inc, for more information.   


16 March 2015

Auto Insurance:  Even High Risk Drivers Need It

About ten years ago, my auto insurance was cancelled. This took place after one too many accidents. I was now a high risk, and my provider was not willing to keep me on any longer. Since there was no way that I was going to get behind the wheel without coverage, I started checking out plans with high-risk insurers. Some were not all that great, but others offered benefits that were very close to my old plan. I soon found a provider who would accept my application, and I began to be a little more careful with my driving. If you are having trouble buying auto insurance, let me help. I'll tell you what to look for in a high-risk provider, and how to find the best one in your area. In no time at all, you'll be covered and ready to get back on the road again.