How do surety bonds function?
A surety bond is the solution. To obtain the surety bond, the contractor pays a premium to an insurer. If the contractor fails to deliver, the insurance pays the necessary compensation to the agency. The main distinction between this and regular insurance is that the insurer can and will go after the contractor to recover this money. The purpose of the surety bond is to give the agency comfort that it will not have to hunt after the money itself. Here are a few examples of the various sorts of surety bonds:
- Bid Bonds
- Court Bonds
- License and Permit Bonds
- Fiduciary Bonds
- Miscellaneous Bonds
- Payment Bonds
- Performance Bonds
- Public Official Bonds
- Warranty Bonds
The distinction between principal and obligee.
While government entities frequently require bonds, it can work with any two organisations. The principle is the one who buys the bond, whereas the obligee is the person who receives any payout. If the principal fails to complete the work they are obligated to do, the obligee gets paid for financial loss and may be able to find another contractor to finish the project.
Please contact us if you have any further questions concerning surety bonds.
