Surety Bonds: An Introduction |
Posted: May 10, 2016 |
In order to understand Surety bond, it is pertinent to mention few things which will make us understand its overall paradigm. In country Federal, state, and local governments need surety bonds in order to organize possibility on development projects (construction projects and protect taxpayer dollars). It is important to mention that surety bonds are not confined to general construction. Many private project owners demand bonding requirements on their projects, and prime contractors may require subcontractors to obtain bonds.
Bonds play a vital role in ensuring that the work on certain project will be done to the specifications set forth in the contract within a certain time-frame. This allows other aspects of the project to be scheduled without the fear of loss that comes from rescheduling and such. Before we discuss other aspects of this bond, it is important to mention what surety bond means. It is Formal, legally attainable contract within a first party (the principal or obligor), a second party (the customer or obligee), and a third party (the surety, such as a bank, bonding company, or insurance company) whereby the surety guarantees payment of a specified maximum sum, or to otherwise compensate, the obligee against damage or loss caused by the actions (or a failure to perform) of the obligor. The bond ensure the provides a pecuniary guarantee to the other party, that the party will obtain the product, service or action committed by the contract or its financial tantamount. There are four types of surety bonds: Bid Bond: Ensures the bidder on a contract will enter into the contract and furnish the required payment and performance bonds if awarded the contract. Payment Bond: Ensures suppliers and subcontractors are paid for work performed under the contract. Ancillary Bond: Ensures requirements integral to the contract, but not directly performance related, are performed. It is important to mention the process To get a surety bond, one needs to submit an application with a surety agent that provides the type of bond you need. The agent will analysis all details which includes your credit and other references in oder to calculate the cost of issuing you the bond. It all depends on the total sum the bond shields and the outcome/results of the credit and reference checks, you'll probably have to pay approximately 1 to 20 percent, or possibly more, of the cost of the bond. Once the bond is approved and you've signed the bond agreement, you'll receive your bond in a day or two. Surety bonds do not replace the need for insurance. Pertinently Bid, performance and payment bonds are all used as another level of protection against things that occur and cannot always be controlled throughout the construction process. You may also wish to get detailed information here http://www.suretybondprofessionals.com/contact-us/
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