What you need to know about Surety bonds
We understand that sometimes construction or any other activity that is contractual can be extremely daunting. We worry about, “what if the contractor won’t complete the job?” We believe that’s a legitimate question to be concerned about because not all contractors are the same. Unforeseen circumstances can force them to abandon the job halfway. That’s why we want to introduce you to the power of the Surety Bonds; it has a different bonding definition when compared to other types of bonds.
NFP Surety is the largest bonding agency in the country, and can bond almost any type in every state! Call us today, and we can send you a free bond quote in just a few minutes. Contact NFPSurety.com today. Chron defines bonding in business.
It is important to note bonding definition vary from one industry to another as well as their specific requirements. Below are the industries that require surety bonds for their projects.
- Automobile dealers
- Collection companies
- General contractors
A bond will be priced as a certain percentage of the total amount of the bond, and this as well varies from one industry to the next.
Four surety bond types used in the construction industry are…
- Contractor License
- Bid Bond
Why are they so important? A surety will help you avoid stressful situations such as your project left hanging, by guaranteeing you that once the defined project begins, it’s bound to reach completion. You, as the owner (Obligee) will go around looking for the best contractor in town (principal) to help you with your project.
Then the contractor will come to us for proper bonding. Now, if the principal (contractor) fails to deliver/defaults, we are obliged to find you another contractor to finish the project, or we can compensate you for the financial loss suffered.
As per above bonding definition, it is apparent that we are here to give the bond owner peace of mind and helping them get engaged in other projects that require their attention.
Besides giving peace of mind, surety gives the owner of a project the following benefits;
Lowers the cost of a project through competitive bidding
The contractor cannot divert the funds
Provides an intermediary to direct complaints towards
But before issuing out the bond, we first consider the character of the person making the bid. We evaluate if they had received and unpleasant reviews from their past clients. We also consider their capacity to deliver both current and future responsibilities, this includes their experience and if they possess the right tools to perform the work. Some contractors are just jokes; inadequate capital to start and see through the project. Besides the capacity of the contractor, credit score is critical as well.
Why are these things important? We believe with bonding that gambling on unprepared contractors whose level of commitment can be viewed as questionable or could potentially end up bankrupt halfway, will cause tremendous economic havoc.
Surety Bonding Definition
We provide surety solutions so that won’t happen. Below are just a few different types of bonds as per the definition of bonding;
Proposal or bid bonds
Most of the time, project owners have little idea whether the builder is financially able to finish the projects. But, the moment bid bonds are presented by the builder at the time of making his bid/proposal, as per the definition of a bond, you can relax knowing that if in case the contractor fails to complete the work project, the obligee can file for compensation. It also shows that the contractor is well qualified to execute the defined project to the end.
As a contractor, you are required by law to submit proposal bonds any time you bid for federal projects. However, this trend is gaining popularity within the private sector as a way of protecting themselves from the uncertainties that come with the project at hand.
If you want to be competitive in your industry, you should get this type of bond.
With sureties, the bond guarantees that the project will be carried out as specified in the contract. It protects the owner of the project from any losses that can occur in the event that the contractor fails to complete the job. The government requires performance bonds to protect the tax payer’s money that go towards such projects as building bridges and road construction. In the event of a claim, the bond will be paid to project owner only. Nobody else can make claims against performance bond. Just as we discussed in the earlier bonding definition, the obligee, principal and us (the surety company).
When applying for performance bonds, we will ask you for the following information;
Application form for surety – Here is a link to our application – https://nfpsurety.com/application/
Copy of the contract form that you want to bid
Not less than two years of financial statements prepared by CPA
if you own any real estates, it will help to hasten the application process.
Here is Business Dictionary‘s definition of a surety bond.
Payment Bond – A payment bond is an essential requirement in most of the construction activities where it is issued together with the performance bond. The bond ensures that the subcontractors, material suppliers, and the workers are fully paid. Contractors are required to apply for this bonding definition for all jobs above $35,000 and must be hundred percent of the value of the contract. The general contractor will promise the workers and the subcontractors that he will pay them all their money when due. We, the surety bonding company, will also come in promise to compensate all the parties involved with the job, in case the contractor defaults. But with the private projects, this bonding definition will be used in place of mechanics’ lien. The workers will collect their payments from us if the principal fails to pay them. If this happens, it will decrease the penal sum.
Maintenance Bond – With this type of bond, the principal agrees to cover any defects that will arise within a specified period after completing the work project. Some economic sectors are hazardous; these include the construction industry. Many construction businesses fail due to many reasons. But with surety bonding solutions, one can avoid risks that might transpire to your projects.
That burden of the project can be shifted from the owner of the gig to us. We will make sure that the general contractor delivers and in case of any defaults due to unavoidable circumstances, we will come in and compensate the parties involved.
If you would like to learn more about bonding definition, check out Cornell Law School’s definition… https://www.law.cornell.edu/wex/surety_bond
At NFP Surety, we have been in the bonding industry since 1984! Let us do the shopping for you, and give you almost instant bond quotes in just a few minutes. We can write all types of surety bonds. Call us today!