Surety bonds purchased in the state of Iowa are intended to provide a measure of protection for the company or organization requiring a contractor to buy the bond. Bonds are similar to insurance in that monetary compensation can be gained if the terms specified in the bond are not fulfilled by the contractor. Unlike insurance though, the party being protected by a surety bond is not the party actually buying the bond, it's the company or agency requiring purchase of a bond as a condition of employment.
One of the most common types of sureties is the license and permit surety, which the state requires of some contractors and professionals as a condition of conducting business within state borders. The license and permit bond does not protect the contractor or professional person, but it does provide protection for consumers who avail themselves of the services provided by that individual or business.
What Is an Iowa Surety Bond?
These bonds are contracts between three parties, known individually as the principal, the obligee and the surety company, and each has a specific role in making bonds an effective means of conducting business. The principal purchases bond because it is required by the obligee, and the surety company is a financial organization that sells bonds to the principal.
In many cases, an obligee will not hire a contractor to work on a project unless they are bonded, because the obligee needs to have some guarantee of good work performance, and wants assurance that the terms of the bond agreement will be lived up to. In this model, the surety bonding company fills a role something like that of an insurance company, agreeing to pay out an amount of money equal to or less than the face value of the surety if the principal fails to live up to the terms specified in the bond.
How Does a Bond Work?
The underlying mechanism that makes sureties effective as a means of protection for the obligee company is the motivation it generates for a principal to live up to the requirements stipulated in bond's terms, whether they relate to compliance with rules and regulations, or specific execution of tasks up to a desired standard.
For instance, if an electrical contractor fails to properly install wiring on a construction project as specified in the terms of the bond, the hiring company (the obligee), would have the right to make a claim against the bond in the amount of damages sustained by the poor workmanship or non-compliance. The claim would initially be paid out by the bonding company, and then the bonding company would seek reimbursement from the principal who failed to execute the terms within the bond.
Since this can be a significant amount of money, it serves as a powerful incentive for the principal to deliver quality workmanship in compliance with terms within the bond. In addition, any claim made against the bond purchased by a principal would leave a black mark on their reputation, and future employment might be problematic because of the history of defaulting on bond terms. We would love to teach you how to get bonded in Iowa. Contact our office today, and let NFP get you properly bonded. We can assist with all bond types and amounts.
Common Types of Surety Bonds in Iowa
There are two main categories of bonds that can be purchased in the state of Iowa: commercial bonds and contract or construction bonds. Construction bonds are of the type specified in the electrical contracting project described above, and can actually include several subtypes such as performance bonds, bid bonds, site improvement bonds and supplier payment bonds.
The other main category of bonds has far more sub-types than the construction category, literally including hundreds of different types of bonds. It's fair to say that this category takes in nearly every kind of bond that is not of the construction surety type. Sureties in the commercial category are too numerous to list individually, but some of the more common types are the license and permit bond, court bonds, fiduciary bonds, fidelity bonds, public official bonds and probate bonds.
Industries that Require Surety Bonds in Iowa
Two of the main industries that require hired contractors to purchase bonds are the construction industry, and the various levels of government organizations. While virtually any industry in this country might want to take advantage of the protection afforded by being bonded, there are probably more bonds written up for the construction industry and for government projects than any other individual industries.
The reason bonds are such a central part of the construction industry is that there are so many individual contractors supplying services on construction jobs that there has to be some guarantee of quality workmanship and compliance with rules and regulations. Lacking this kind of assurance, probably very few construction jobs would be satisfactorily completed on time, on budget and with a high standard of professional workmanship.
The hiring project manager is protected from poor contractor performance by the bonding mechanism, since failure to abide by a bond's terms would entitle the manager to make a claim and receive monetary compensation. Government organizations have that same obligation to protect their taxpayers, who supply the funding for the many projects initiated by governments at all levels, from the federal level down to local townships.
How to Get a Surety Bond in Iowa
It's fairly easy for a contractor to purchase a surety, assuming that they know exactly which type of surety is required as a condition of employment. There are many surety companies that can issue bonds in Iowa, including NFP, one of the largest and most trusted sureties in the business. We've been bonding in Iowa since 1984 and you'll love our easy bonding process and.
Applying for a bond can be done online to expedite things, and once the bonding company receives the application, it will issue an indemnity agreement specifying the amount of a bond, as well as any terms required by the obligee. The indemnity agreement must be signed and notarized by the principal, and returned to the bonding company, usually by fax or by email. At that time, the company can issue the bond itself, and the principal would be covered.
Our team provides affordable Iowa surety bonds and fidelity bond insurance. Every bond is prepared on a specific Iowa bond form, as prescribed by the entity requiring the bonding (known as the obligee). Below is a list of Iowa bonding types that are commonly requested in Iowa.
Apply for your bond now by completing our online application. Call us today to learn how to get bonded in Iowa.