In today’s unpredictable economic climate, surety bonds are highly significant for business owners who want to ensure the legal terms of their closed contracts and agreements. The practice of establishing these types of bonds dates back hundreds of years when the “bond” was a role for increasing safety of long-distance trade. In today’s society, the bond for surety can take various forms playing various roles; however, the common feature is to secure the terms of major contracts. To ensure your company is utilizing the bond correctly, it is important to take certain considerations into account. This article will provide information on suretyship and the considerations to be made.
According to research, the construction industry in the United States has an approximate work of $500 billion including over 70 national contractor agencies and over one million contractors. When elaborating on marketing investigations conducted in the US, it was discovered that approximately 50,000 of the contractors in the construction industry failed to meet the legal requirements of their project agreements in the past decade. This resulted in many projects being cancelled and a loss of over $18 billion. To prevent further financial losses, many companies are now turning to a surety bond when closing all public and private projects.
What Is This Type Of Bond?
Before we can discuss the roles of a surety type of bond, it is important to know what this bond involves. This type of bond is typically established as a temporary agreement between three parties: the obligee or secured party, the obligor or principal party, and the surety or party that is secondarily liable. The basic premise is that suretyship involves the surety agreeing to undertake the debt of the obligor or principal party.
Many people continue to confuse surety with an insurer; however, they are two distinct organizations. For example, a liability insurer can pay a third-party on behalf of the insured when the insured party is under the protection of the insurer. In the case of suretyship, however, the surety ensures that a contractor must perform in a certain way and the bond protects the project owner instead of the contractor.
What Are The Different Types Of Bonds?
Since their first emergency several hundred years ago, the surety companies of the United States have evolved dramatically. In today’s corporate setting, they are driving efficient, reliable, and high quality services to different companies. As a result, the surety bonds offer is diverse addressing a plethora of risk situations. The two main categories of these bonds include contract surety bonds and commercial surety bonds. The contract surety option involves provision of financial security and project assurance by guaranteeing the obligee (secured party) that the obligor will perform the work by paying contractors and workers. The commercial surety option involves a guarantee of performance by the obligor or principal as stipulated in the bond agreement.
Regardless of whether you are interested in payment bonds, performance closing bonds, subdivision bonds, or contractor licensing bonds, it is important to consider the surety agreement before signing any contract. Feel free to contact Bonds Express for professional assistance with this type of legal agreement.