Explaining Pennsylvania Surety Bonds to Contractors
Posted on: January 26, 2015 by Aegis General
Pennsylvania Surety Bonds play a vital role in a contractor’s ability to secure and complete projects, and are often necessary to attain proper licensing and certification from local authorities. While surety services are used in many industries, they are most prevalent in the construction and land development sectors. Most contractors understand the value and necessity of surety services, yet few understand how these bonds works, how they differ from other forms of insurance, and why having the right bonding partners is so vital to the success of their operation.
First of all, it is important to inform your clients that surety bonds are not truly a form of insurance for their own personal business assets, and as such they serve a very different purpose for businesses looking to obtain them. A traditional insurance policy functions like a contract between a business and their insurance provider to protect the business from financial losses. Instead, surety bonds function more or less like a line of credit extended to the contractor, or bond holder, which can be used to cover a number of expenses should the contractor encounter specific problems while on the job.
Surety bonds typically involve three parties: the principal, the obligee, and the surety provider. The principle on a surety bond is the entity acquiring the bond because they are entering a contractual obligation. The obligee is the party to which an obligation is owed, for example the contract owner or property owner on a job site. The third party is the surety provider which establishes an agreement with the principle to financially support their contractual obligations and fulfillment in the form of a bond. The surety provider’s role is to ensure that all contractual obligations will be fulfilled to the obligee, or financially compensate the obligee for any losses in the event of contract breaches.
In essence, surety bonds are basically financial promises between the contractor, their financial backers and the project owner that accompany the contractual undertakings. The contractor will typically attain a bond to prove to the project owner that they have the necessary credentials and financial capacity to perform the functions being asked of them. Should a contractor default on any of their contractual obligations, their surety provider will either financially compensate the property owner or project manager for any incurred losses or find suitable means for contract completion. For example, the surety provider can arrange for another contractor to complete the project. In turn, the surety then seeks compensation from the contractor for any financial losses it sustained due to their contractual default.
If your clients are seeking quality Pennsylvania surety bonds and services, look no further. At Aegis General Insurance Agency, we specialize in providing underwriting bid, performance, payment, supply and maintenance bonds. In addition, we can help address your client’s surety needs as their businesses grow and evolve. We also have the ability to write non-standard business with the use of collateral or funds administration when necessary. To learn more about our operation and all of our products, contact us today at (866) 662-5752.