In today’s unpredictable and unstable economic climate, surety bonds are items that are extremely important for company owners who wish to ensure that the legal terms of their contracts are respected by all parties. The practice of establishing these bonds is one that dates back hundreds of years, when such agreements had the role of increasing the safety of long-distance trade. In today’s society, a bond can take various forms playing different roles; however, the common task is to act as a means of secure the terms of major contracts. Presently, these bonds are used extensively in the construction industry with contractors providing project owners with guarantees of terms in the contracts. This article will provide information on these types of bonds and how they are used in different companies.
According to evidence from recent studies, the construction industry in the United States is a 500 billion dollar enterprise consisting of over one million contractors, approximately 100 national contractor agencies, and over seven million workers. Market investigation discovered that industry in the US presented over 65,000 construction contractors have failed to respect agreements in the last ten years; thereby, cancelling private and public sector construction projects worth more than 15 billion dollars. To prevent any major financial losses with further negative consequences, it is recommended that the use of a surety bond be used when closing major contracting deals. This will enable project owners to minimize any serious financial risks.
This type of bond will typically establish a temporary tripartite relationship between the secured party (the obligee), the principal (the obligator), and the party that is secondarily liable (the surety). A suretyship of this sort will require the surety to undertake the debt of the obligator to respect the contract. While many people will still confuse the surety with an insurer, these are two very distinctive notions or concepts; therefore, it is important to distinguish between the insurance agreement and the suretyship. For example, a liability insurer will pay a third part on behalf of the insured. In contrast, however, the surety guarantees performance of a contractor to the project owner and the bond will protect the project owner rather than the contractor.
Since these types of bonds first emerged over 100 years ago, the surety companies in the US have evolved considerably. In today’s society, surety companies, such as Bonds Express, are reliable and efficient offering high-quality services. Consequently, the bonds have diversified and address a plethora of risk situations. The two main categories of these surety bonds nowadays include contract bonds and commercial surety; however, these two categories can be further separated into a vast array of subcategories.
One of the more popular subcategories of contract bonds is represented by bid bonds. The bid bond provides financial assurance when the contractor intends to enter a contract at a price bid and provides required performance with pre-negotiated payment bonds. Another subcategory for commercial bonds is the contractor license bond and this includes the contracting of licence bonds by state laws to obtain specific licences from businesses.
Regardless of the type of bonds you are interested in; it is recommended that you use a highly reputable bonds company.