Surety Bonds in Arizona
A surety bond is an insurance policy that guarantees that an individual or business will fulfill their obligations to a client. The party who purchases the bond is known as the principal, while the party who is protected by the bond is called the obligee. If the principal fails to provide the services that they were obligated to provide, the obligee can be financially reimbursed according to the terms of the bond. When this happens, the compensation is provided by the surety, or the party who sold the bond to the principal.
Bonds are required by professionals in industries such as construction and auto sales, and they are a must for any contractors who are working on a construction project for the federal or state government. The requirements for when bonds are necessary vary from one state to the next, and you will need to find a company that specializes in selling the type of Arizona surety bonds you will need.
How Does an Arizona Surety Bond Work?
There are several different types of surety that all have their own requirements, and Arizona surety bonds might be slightly different from what you would find elsewhere. Most of them do operate in roughly the same way, however. A bond works as insurance to an obligee, even though it is the principal who purchases the bond. Should the principal fail to fulfill their obligations to the obligee, the obligee can file a claim against the bond. If the claim is proven to be valid, the insurance company who sold the surety reimburses the obligee according to the terms of the bond. The underwriters of the policy will then be reimbursed by the principal for the claim.
Which Industries Require Bonding?
Most bonds are written for the construction industry, especially for government and public works projects. This is especially true with Arizona surety bonds. Arizona is said to be one of the fastest growing states in the country, so there are a significant amount of construction contractors as well as municipal construction and renovation projects going on at any given time. They are also often required of other construction projects that will cost over $100,000. Commercial bonds are mandated by individuals and businesses in the auto and real estate industries for licensing purposes.
Types of Surety Bonds Arizona
As we said before, there are several different kinds of bonds available, but most of them can be categorized as either contract or commercial bonds. Contract bonds are required of a contractor for government construction projects, and can themselves be put into three categories:
- Bid Bonds – A bid bond provides protection to an obligee should a successful bidder back out of a project after committing to it. It essentially allows the obligee to be reimbursed for services that were promised but never rendered. They also provide protection should the principal fail to provide their own form of security or insurance.
- Performance Bonds – A performance bond guarantees that all obligations will be met faithfully by the principal.
- Payment Bonds – A payment bond guarantees that the principal will provide adequate payment to all subcontractors or suppliers that are involved in a construction project.
While contract surety solutions are mandatory of contractors for construction projects, commercial bonds are for individuals or businesses who provide other services. These include:
- License and Permit Bonds – License and permit bonds are often required of anyone engaging in businesses such as real estate and automobile sales. Licensing requirements can vary from one state to the next, so you will have to do some research to find out what bonds will be right for you.
- Court Bonds – Court bonds are required of plaintiffs or defendants to preserve the rights of the opposing party in a court case.
- Fiduciary Bonds – Fiduciary bonds are reserved for those who provide court-supervised trust.
- Public Official Bonds – As their name implies, public official bonds are mandated by certain public officials to get. They protect the public from malfeasance should an official fail to perform his or her duties faithfully.
- Miscellaneous Bonds – These sureties do not fall into any of the above categories.
How Surety Bonds Benefit Principals
At a glance, it would seem that obligees are the ones who benefit from bonds. While these bonds do provide some much-needed security to these clients, they also provide credit to principals. Having a surety in place acts as a guarantee that any services required of a principal will be carried out to an obligee’s satisfaction. Most are required by law, but they are still worth your time and money even when they are not.
If you are in need of a surety in the state of Arizona or you are unsure of whether or not you need one, contact us today. We will be glad to answer any of your questions and help you find the bond that is right for you.
NFP Surety® provides affordable Arizona surety bonding and fidelity bond insurance. Every AZ surety is prepared on a specific AZ bond form, as prescribed by the entity requiring the bonding (known as the Obligee). Below is a list of bond types that are commonly requested in Arizona.
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If you prefer, you may download an application to complete and fax or email to our bond insurance agency for processing.
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