Introduction to Surety Bonds: The Basics
Posted on: May 3, 2016 by Aegis General
Contractors, foremen, and land developers are no strangers to the importance of surety bonds. As these provide the edge that they need to win bids over their competitors, surety bonds are essential for these professionals. Therefore, let us take a closer look at the basics of these Surety Bonds and how they work.
What is a surety bond?
Surety bonds provide completion of a project that the owner has paid for in the event of a contractor default. The contractor obtains a surety bond from a surety company. If the contractor defaults, the surety company is obligated to find another contractor to complete the contract or compensate the project owner for the financial loss incurred, says the U.S. Small Business Administration.
What types of surety bonds are available?
Bid Bond- This bond ensures that the winning bidder of a project will follow through with the payment and time obligations it requires for completion.
Performance Bond- This provides peace of mind that the contractor will complete the project in accordance with the vision and the stipulations that were agreed upon in the contract.
Payment Bond- This ensures subcontractors and suppliers are paid for their efforts as outlined in the contract.
Ancillary Bond- The SBA defines this as a bond that ensures requirements integral to the contract, but not directly performance related, are performed.
When would a surety bond be used?
Federal construction contracts that equal $150,000 or more require surety bonds as a condition of the winning bidder’s contract. In addition, municipal government private entities, supply, and service contracts also typically require the use of surety bonds to win bids.
At Aegis General Insurance Agency, we specialize in providing a wide range of surety bonds; including underwriting bid, performance, payment, supply, and maintenance bonds. Please contact us today for more information at 855.399.0966.