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. The first is the contract surety bond which provides 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.
The second type is the commercial surety bond, which guarantees performance by the principal of the obligation or undertaking described in the bond. Commercial surety bonds include:
- 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; and
- 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;
- For more information on surety bonds contact our office or for general information see the Surety Information Office website (www.sio.org)
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