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SpinDistribute.com Article Directory

The following article was published in our article directory on May 8, 2013.
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What You and I Can Get From Surety Bonds

Article Category: Business

Author Name: [email protected]

Surety bonding is a practical way for contractors to guarantee owners that projects will be executed according to timeframe and specifications indicated within the bond. Contractors will benefit much from the prosecution of surety bonds because they get to ease up on the overall costs to work on slated projects. This means they can free some of their assets for other purposes, which are not being tied up just to guarantee job performance on a specific project. It's a practical (and vital at the same time) way to improve their capacity to perform multiple jobs.

Looking at from the customer's side, surety bonding assures timely payment when a job needs to get back on track should contractors fail to perform at their end. One additional (and often overlooked) benefit is how a surety bond can be easily produced to guarantee payment to contractors.

Surety bonding, a common thing in the construction industry, is also exploited in other industries as well. It can be used in ensuring performance at work. In some other cases, owners entering into contracts require this before things can proceed. In other cases still, governments will also require such bond before they can officially issue business licenses. There are companies whose business licenses require them to engage first in surety bonding, which also shows their reliability in the industry.

Three parties make up the surety bond: obligee (customer), principal (contractor), and the surety company putting the bond in place. When principals apply for surety bonding, the surety company will have to investigate the application first, just like how loan applications are being scrutinized before they are finally approved. The principal takes care of the premium, from one to five percent of the total amount indicated in the bond. High risk bonds also exist, and they cost about twenty percent or more.

Surety bonding is ideal in the construction in so many ways. Its low cost is what attracts many parties to it, and many projects have been successfully completed because of the presence of surety bonding. Without it, the obligee will have to require the principal to pledge in his resources to guarantee excellent work performance. The pledge must then be secured through an LC (Letter of Credit).

The implications of the situation are enormous; at an angle, this will become a heavy burden to bear for everyone in the contract, except for principals who have the ability to spare their other resources. And as expected, the situation will tie up vast resources for an inconsiderably long time, which is not healthy for the business. This is so since any oblige can simply file for "poor performance" even after project completion. The alternative option left would be for the obligee to endorse legal action just to recover the money he had thrown in case of substandard performance. It's a time consuming and costly process that's considered nothing more than a futile exercise. This is one situation you would not to get caught in.

The bottom line is, surety bond remains an important tool to guarantee contract performance, though anyone can utilize other bond types as well. This makes for a convenient working environment that allows better job performance.

Keywords: surety bond, surety bonds, performance bond, getting bonded, bid bonds, minority contractors

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