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Contract surety bonds include bid bonds, performance bonds, payment bonds, maintenance bonds, and subdivision bonds.
A bid bond is one which provides 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.
A performance bond is one which protects the owner from financial loss should the contractor fail to perform the contract in accordance with its terms and conditions.
A payment bond is one which guarantees that the contractor will pay certain subcontractors, laborers, and material suppliers associated with the project.
A maintenance bond is one which normally guarantees against defective workmanship or materials for a specified period.
A subdivision bond is one which guarantees to a city, county, or state that the principal will finance and construct certain improvements such as street, sidewalks, curbs, gutters, sewer, and drainage systems.
Commercial surety bonds include License and permit bonds, Judicial and probate bonds (fiduciary bonds), Public official bonds, Federal (non-contract) bonds, and Miscellaneous bonds.
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License and permit bonds are required by state law or local regulations in order to obtain a license or permit to engage in a particular business, e.g. contractors, motor vehicle dealers, securities dealers Blue Sky bonds, employment agencies, health spas, grain warehouses, liquor, and sales tax.
Judicial and probate bonds also referred to as fiduciary bonds, secure the performance on fiduciaries' duties and compliance with court order, e.g. administrators, executors, guardians, trustees of a will, liquidators, receivers, and masters. Judicial proceedings court bonds include injunction, appeal, indemnity to sheriff, mechanic's lien, attachment, replevin, and admiralty.
Public official bonds guarantee the performance of duty by a public official, e.g. treasurers, tax collectors, sheriffs, judges, court clerks, and notaries.
Federal (non-contract) bonds are those required by the federal government, e.g. Medicare and Medicaid providers, customs, immigrants, excise, and alcoholic beverage.
Miscellaneous bonds - .e.g. lost securities, lease, guarantee payment of utility bills, to guarantee employer contributions for Union fringe benefits, and workers compensation for self-insurers.
Surety bond premiums vary from one surety to another, but can range from one-half of one percent to two percent of the contract amount, depending on the size, type, and duration of the project and the contractor. In many cases, performance bonds incorporate payment bonds and maintenance bonds. When bonds are specified in the contract documents, it is the contractor's responsibility to obtain the bonds. The contractor generally includes the bond premium amount in the bid and the premium generally is payable upon execution of the bond. If the contract amount changes, the premium will be adjusted for the change in contract price. Payment and performance bonds typically are priced based on the value of the contract being bonded, not necessarily on the size of the bond. Commercial bonding has a greater range of pricing; high risk programs have a high premium and 10% collateral.
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. There are two categories of surety bonds:
Contract Surety Bonds
Contract Surety Bonds provide financial security and construction assurance on building and construction projects by assuring the project owner (obligee) that the contractor (principal) will perform the work and pay certain subcontractors, laborers, and material suppliers.
Contract surety bonds include:
- bid bonds, which 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, which protect the owner from financial loss should the contractor fail to perform the contract in accordance with its terms and conditions.
- payment bonds, which guarantee that the contractor will pay certain subcontractors, laborers, and material suppliers associated with the project.
- maintenance bonds, which normally guarantee against defective workmanship or materials for a specified period.
- subdivision bonds, which guarantee to a city, county, or state that the principal will finance and construct certain improvements such as street, sidewalks, curbs, gutters, sewer, and drainage systems.
Commercial Surety Bonds
Commercial Surety Bonds guarantee performance by the principal of the obligation or undertaking described in the bond.
Commercial surety includes:
- License and permit bonds, which are required by state law or local regulations in order to obtain a license or permit to engage in a particular business, e.g. contractors, motor vehicle dealers, securities dealers Blue Sky bonds, employment agencies, health spas, grain warehouses, liquor, and sales tax.
- Judicial and probate bonds, also referred to as fiduciary bonds, secure the performance on fiduciaries' duties and compliance with court order, e.g. administrators, executors, guardians, trustees of a will, liquidators, receivers, and masters. Judicial proceedings court bonds include injunction, appeal, indemnity to sheriff, mechanic's lien, attachment, replevin, and admiralty.
- Public official bonds, which guarantee the performance of duty by a public official, e.g. treasurers, tax collectors, sheriffs, judges, court clerks, and notaries.
- Federal (non-contract) bonds are those required by the federal government, e.g. Medicare and Medicaid providers, customs, immigrants, excise, and alcoholic beverage.
- Miscellaneous bonds, e.g. lost securities, lease, guarantee payment of utility bills, to guarantee employer contributions for Union fringe benefits, and workers compensation for self-insurers.
Information provided by Surety Information Office: http://www.sio.org
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