Bonds

Suretyship is a very specialized line of insurance that is created whenever one party guarantees performance of an obligation by another party. A surety bond is a written agreement where one party, the surety, obligates itself to a second party, the obligee, to answer for the default of a third party, the principal.

Types of Surety Bonds

Contract Surety Bonds (or Corporate) provide financial security and construction assurance for building and construction projects by assuring the project owner (obligee) that the contractor (principal) will perform the work and compensate certain subcontractors, laborers and material suppliers, as outlined via their contract. Contract surety bonds include the following:

• Bid bonds provide financial assurance that the bid has been submitted in good faith and that the contractor intends to enter into the contract at the price bid and provide the required performance and payment bonds.
• Performance bonds protect the owner from financial loss should the contractor fail to perform the contract in accordance with its terms and conditions.
• Payment bonds guarantee that the contractor will pay certain subcontractors, laborers and material suppliers associated with the project.
• Maintenance bonds guarantee against defective workmanship or materials for a specified period.
• Subdivision bonds make guarantees to cities, counties or states that the principal will finance and construct certain improvements such as streets, sidewalks, curbs, gutters, sewers and drainage systems.

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