Posts Tagged ‘contract bond’

Surety Bond FAQ

Monday, May 17th, 2010

What is a surety bond

surety bond is different from insurance in many ways. If you have a insurance claim the principal pays the deductible and the insurance company covers the rest of the claim. With surety bonds if you have a claim, the surety restores the obligee to it’s original condition then the principal must restore the surety company to its original state. A  surety bond involves three parties the first party is the obligee, the second party is the  principal and the third party is the surety company.

How does it work?

So basically a bond works like this. The surety assumes liability for the principal if the principal fails to perform its obligations to the obligee.

What is a principal?

The Principal is the primary party who will be performing the contractual obligations. When applying for the bond the principal’s credit, financials and experience will be used to determine surety credit.

What is a surety company?

A surety company is the third party that will be backing the principal in the event of a claim. A surety company is regulated by the department of insurance. If a bond is needed for a federal license or federal contract the surety must be registered and approved by the Department of treasury and on the circular 570 list.

What is an obligee?

The obligee is the party that requires the principal to obtain bonding. The surety bond protects the obligee not the principal.

Who requires bonding?

Bonding can be required by pretty much anyone, but normally bonding is required in connection to a license or permit. These bonds are simply known as license and permit bonds. The State or Federal government will not grant your business license until the license bond is procured.  Surety bonds can also be required to guarantee that the construction of a project will be completed. These bonds are known as Performance and payment bonds.

Why a bid bond is required

Monday, June 8th, 2009

A bid bond is surety bond that guarantees the obligee that the principal will be able to honer their bid. Some times obligee’s will not accept cash for the bid only a bid bond.

If the contractor has the lowest bid they will be awarded the contract. Once this occurs the bid bond will turn into the final bond. They surety will still need to see the top three bidders before the payment and performance bond will be issued. If there is to much of a bid spread the surety will not issue the contract bond.  If the bid is closed the surety will require a letter from the obligee stating that. Bid bonds help weed out contractors that can not support the project financial.

How bid bonds help contractors

Bid bonds help contractors free up working capital because if they did not have a bid bond the contractor would have to furnish cash in lieu of the bid bond.

Maintenance Bonds another type of surety bond

Thursday, May 21st, 2009

A maintenance bond is also other part of surety bonds offered by the bonding companies. This maintenance bonds are used after the completion of the contract by the contractors. This maintenance bond is used to maintain the construction after the work is completed. Performance and payment bonds are used till the completion of the contract. After the completion of the contract this maintenance bonds is used to ensure proper maintenance of the construction.

This bond guarantees the performance of the contract. It covers the time after the building is completed. These types of bonds are called maintenance bonds. This bond stipulate the building stability and maintenance responsibility of the construction company after the building ha been completed.

These bonds have existence for at least one to two years even after the structure has been completed. Only certain construction will extend beyond the circumstances. This maintenance bonds are always issued before the construction begins in combination with the performance bonds.

We are the surety bonding company specialized in providing maintenance surety bonds. Our integrity bonding company will ensure you that we will provide affordable bonds to you and also ensures that we will guide you in every aspect needed. Our bonding company gives you guarantee that we will perform our obligation as per the terms and condition of the contract. If you have any queries, immediately contact our website Surety Bond from Integrity Bonds and available  the services provided by our company.