What is an Obligor?
Obligor meaning – easily explained by the bonding pros…
If you aren’t familiar with surety bonds and how they work, you have probably not heard the terms obligee and obligor. This discussion will provide some background on those terms, and on the importance of surety bonds in driving many of the biggest industries in the country, providing a guarantee of quality workmanship so that relevant standards can be adhered to, and finished products measure up to whatever regulations have been imposed on workmanship in a given industry. By the end of reading this, you will have a better understanding of what is an obligor…
The obligor party in a surety bond arrangement is one of three parties which are all part of a contractual agreement that binds them together. The surety bond itself is actually sold by the obligor to a principal, generally a contractor or subcontractor who has agreed to perform some action or body of work for a hiring entity, known as the obligee in the arrangement. Most industries in this country make use of surety bonds, because of their inherent usefulness of providing assurance that a contracting party will meet the terms of quality, timeliness, and compliance which are detailed in the terms of the bond.
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What is a Surety Bond? – Obligor Meaning
A surety bond, as stated above, is a contractual agreement in which three parties are involved, and the net result of purchasing such a bond to cover a body of work is that it acts as a kind of insurance for the party which needs some kind of work to be completed. Without a surety bond covering the task or the project, the owner or manager of the project would have no guarantees at all that individuals or companies hired to do the work would even complete it.
The bond lists a set of conditions which the project manager requires to be met in order for the work to be considered complete and satisfactory, in order for persons hired to be paid properly for their efforts. Sometimes there are local regulations and laws governing construction which must be adhered to, and sometimes the project manager will require specific terms of completion as well.
A surety bond purchased for such a project will provide some measure of assurance that those terms will be met by contractors, and if they are not completed as agreed to, the project manager would be entitled to make a financial claim against the bond, to recover the amount of any damages suffered by the unsatisfactory work.
How do Surety Bonds Work?
What is an obligor? Defined by NFP Surety. Call us for all your bonding needs! (800) 863-3210. We’ll gladly explain (in detail) obligor meaning.
The effectiveness of surety bonds is that they force, or at least strongly motivate, a contractor to live up to the terms agreed to in the bond, regarding workmanship and compliance. In effect, a bond acts as insurance for the hiring party that high quality work will be done on a project, and that it will be completed on time, in accordance with any imposed rules, regulations, or laws which are in effect locally.
If the contractor fails to meet these terms which have been agreed to, then the hiring party would have the right to claim financial restitution against the bond, and while the initial payment Fswould be issued by the obligor party, the obligor would then seek reimbursement from the contractor who failed to live up to the bond terms. The surety bond thus creates a kind of balance between the three parties, with each depending on the other two for certain actions to be fulfilled satisfactorily, and in the vast majority of cases, this is what actually happens.
What are the Roles of the Parties Involved?
The three parties in a surety bond contract are the principal (usually a contractor), an obligee (a hiring company), and an obligor meaning (a financial company). The obligor is a company which sells bonds, and sometimes insurance policies as well, to principals who must be bonded in order to bid on projects offered by obligees.
After selling the bond to a principal, the obligor’s role is complete, unless a situation arises where the obligee makes a claim against the bond for whatever reason, and in that case, the obligor would have to pay out some amount of money suffered as damages by the obligee (assuming the claim was determined to be valid).
The obligee’s role in the arrangement is to provide a body of work to be completed, and to hire a specific contractor who has purchased a surety bond for the work to be done. The obligee would also establish whatever terms the contractor is required to meet in order to fulfill his promise of quality work.
The contractor or principal in the agreement buys the bond, and either completes the terms listed in that bond, or does not. However, if the principal does not live up to the agreed terms, he would suffer reputational damage, and would also be pursued by the obligor for reimbursement of the claim paid out.
Types of Surety Bonds
There are two basic categories of surety bonds, considered to be contract surety bonds and commercial surety bonds. Contract surety bonds include the sub-types of bid bonds, performance and payment bonds, site improvement bonds, and a few others which are largely specific to the construction industry. Practically all other surety bonds fall into the category of commercial bonds, which includes literally hundreds of specify kinds of bonds, used by virtually all industries. Some examples of commercial bonds are: license and permit bonds, ERISA bonds, fidelity bonds, fiduciary bonds, notary bonds, probate court bonds, and public official bonds.
Industries Which Require Surety Bonds
Because they provide at least a measure of assurance that stated work requirements will be fulfilled by persons hired for that work, surety bonds have universal application, and are therefore used in conjunction with almost every industry in the country. By far the two largest users of surety bonds though, are the various levels of government agencies, and the construction industry.
Government agencies are obliged to account to taxpayers for work done on projects, and that makes bonding very important for accountability. The same is true for the construction industry, where chaos would result if all the subcontractors at work on large projects were not held accountable for the work done, and for fulfilling terms of compliance, timeliness and quality workmanship.
I hope this help you have a greater understanding of the fundamental obligor meaning, and what is an obligor? If you have any bonding needs, we’d appreciate the opportunity to earn your business. Applying for a bond is easy, and can be done online in just a minute. Or you can call our friendly staff. You’re going to like our easy bonding process…we are extremely sure of it! NFP Surety for all your surety bonds.