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When a construction contract is about to be signed, surety bonds are often added in for additional coverage. The AssuredPartners NL team of dedicated surety experts can help identify and secure the right bond for your construction project to protect both the contractor and the beneficiary. Read on to learn more about surety bonds, and why you should consider them for your next project:
What is a surety bond?
Surety bonds are a three-way agreement between three separate parties, known as the principal, the surety and the obligee on a construction project. The principal is the contractor or applicant, the surety is the group that has evaluated the principal’s ability and willingness to perform the project, and the obligee is the beneficiary, who might be the project owner, government agency, etc. With a surety bond, the surety evaluates the principal’s ability and willingness to perform the tasks outlined in the job, and is providing their stamp of approval with a bond. If the principal is unable to satisfy the terms of their agreement, the surety assumes the responsibility and reimburses the obligee.
Is a bond anything like insurance?
Bonds are considered a specialty form of insurance, and the surety is almost always an insurance company. Bonds are very different than insurance, however because the beneficiary is a third party. As long as the principal fulfills the terms outlined in their contract, the surety will not be called upon to perform or pay. The principal is the primary responsible party under the bond, and must agree to reimburse the surety for any claims or expenses they incurred because the principal has not lived up to their agreement.
Who benefits from a bond?
The obligee is the main beneficiary under the bond, but the principal benefits too. If the principal cannot or will not perform, the surety steps in and fulfills the principal’s obligation. The obligee also has an obligation under the bond however. If the obligee fails to fulfill their responsibilities under the contract or agreement, neither the principal nor surety has any liability.
How much do bonds cost?
Generally speaking, contract and commercial bonds can cost between .5% and 3% of the contract price or bond amount, depending on the surety’s assessment of the risk involved. The cost of fidelity bonds usually depends on the number of employees covered.
If you have questions about adding surety bonds to your next construction project, our team of dedicated specialists can help. To learn more, or to contact us, visit: AssuredPartners NL construction insurance.Share This: