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What Does Bonded Mean?

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What Does Bonded Mean?


What Does ‘Bonded’ Mean? – An Explanation from the Experts at Surety by NFP

If you’ve ever had to search for a professional contractor to do repair work in your home, or to do new equipment installations, you probably have come across the phrase ‘licensed, bonded, and insured’ in the classified listings where you searched. While most people are at least somewhat familiar with licensing and insurance, not as many understand what it means to be bonded. After reading this article, you should have a good idea on how to respond, the next time someone asks you “What does it mean to be bonded”?

The short answer to that question is that a business owner has purchased a bond from a financial organization, which is acting in a role similar to an insurance company. If any party should make a claim against that bond, the financial organization would be obliged to pay out a sum of money equal to or less than the face value of a bond.

The surety part of the bond is intended to provide some measure of reassurance to customers that the business owner purchasing the bond will live up to promises made, regarding quality workmanship and on-time delivery. If the business contractor fails to live up to those terms, the customer does then have recourse to make a claim against the bond, and receive monetary compensation for the contractor’s failure.

[What does bonded mean? … Let US teach you.  Bonding is what we do.  You are going to love our easy process…we’re sure of it!]

What are Bonds? 

A surety is a contractual agreement between three parties, which in legal terms are referred to as the obligee, the principal, and surety. As mentioned above, the  company sells bonds to a principal, and is responsible for compensating the obligee party in the event that a claim is made.  We work with highly rated bonding carriers, such as Zurich, Western National, Hudson Insurance Group, and more.  We will write your bond on the correct paper, with the right company.  

Obligees are a customer who has arranged with the principal to have a specific body of work performed, for which specific terms or stipulations were agreed to, usually regarding performance. The involved principal is the party purchasing bonds from the bonding company, and is the contractor or business entity which is performing the work in question.

How do They Work?

Under normal circumstances, a principal will provide professional services to an obligee which are received and accepted, and there is no further involvement of the company, and no action taken against the bond. If work performed by the principal is deemed unsatisfactory by the involved obligee, their desire to be reimbursed for shoddy workmanship or for some other valid reason, obligees may seek financial restitution by making a claim against it.

Assuming that grounds for the claim are valid, the company would then be obliged to pay out some amount which is specified in the claim on the involved bond. The company would then seek to be reimbursed by the principal, who failed to live up to the terms of the contractual agreement of bonds.  Principals would be legally required to pay that amount to the company, which could be a considerable amount.

The fact that any claim against a bond could cause serious financial distress for a principal, plus the fact that a principal would certainly suffer reputational damage by failing to meet terms of the agreement, provide a strong incentive for the involved principal to deliver high quality workmanship to the obligee party. It can thus be said that sureties work to protect customers from unsatisfactory professional services delivered by a contractor who has been bonded.

Why Should you get Bonded? 

Getting bonded is good idea for your company if you happen to be a contractor offering your services to the general public, in a specific area or region. If your business is bonded, that tells customers that they can have some measure of confidence in hiring you, because if anything goes wrong with workmanship, they will not completely lose their financial investment.

Any contractor who is not bonded, could deliver poor workmanship on a project or abandon the project altogether, and the consumer who hired the professional would lose any money paid to the contractor. From this it can be seen that being bonded gives your business a competitive advantage over those contractors competing in your area who are not bonded.

How Bonding can Help People

To see how bonding can sometimes be a great help to people, consider the example where a contractor new to an area is hired by a homeowner to provide all the electrical work in a new home under construction. Once the work is done, an inspection reveals that substandard wiring was used, not all rooms were wired according to the wiring diagram, and some of the work appeared to be dangerously inadequate.

If this contractor is a bonded contractor, the homeowner who hired him can file a claim against the bond in the amount of what it would cost to rework all the electrical cabling. If the contractor is not bonded, the homeowner would have very few options, other than to persuade the contractor to uphold the original terms of the agreement, and provide the specified high quality workmanship.

Who we Bond with:

Surety by NFP only bonds with highly respected insurance carriers.  Contractors Bonding and Insurance Company, The Hartford, Tokio Marine Surety Group, Liberty Mutual, and AM Trust Group, just to name a few.

Industries Which Require a Bond

While virtually every industry in this country makes use of sureties, the two biggest users of bonding are the construction industry and government organizations. Temporary work agencies also make extensive use of bonding, so that customers needing temporary help can be confident of receiving quality work, with financial backing available in the event of any problems with substandard work.

  • Mortgage Brokers
  • Auto Dealers
  • Court
  • Private Investigators
  • Actors
  • and many more.   Click HERE to see an expanded list of bond types.

What does Bond Mean?

We have been the leader in bonding industry since 1984!  What does bonding mean?  Let us show you!  We can do all bond types in all states.  Bad credit bonding programs also available.  Let us be your one stop shop for all you current and future bonding needs.

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Phone: (800) 863-3210
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