Bonding

Background

Surety bonds- Through a surety bond, the surety agrees to uphold, for the benefit of the obligee, the contractual promises (obligations) made by the principal if the principal fails to uphold its promises to the obligee. The contract is formed so as to induce the obligee to contract with the principal, i.e., to demonstrate the credibility of the principal and guarantee performance and completion per the terms of the agreement.  The most common bonds include:

• Contract bonds
• Bid bonds guarantee that a contractor will enter into a contract if awarded the bid
• Performance bonds guarantee that a contractor will perform the work as specified by the contract
• Payment bonds guarantee that a contractor will pay for services and materials
• Maintenance bonds guarantee that a contractor will provide facility repair and upkeep for a specified period of time
• Commercial (Noncontract) Surety bonds
• License and Permit bonds are required by certain federal, state, or municipal governments as prerequisites to receiving a license or permit to engage in certain business activities, guaranteeing to the government and its constituents that the Principal will comply with an underlying statute, law, or ordinance
• Court bonds
• Judicial bonds arise out of litigation and are posted by parties seeking court remedies or defending against legal actions seeking court remedies
• Fiduciary bonds guarantee that persons whom courts have entrusted with the care of others’ property will perform their specified duties faithfully
• Public Official bonds guarantee the honesty and faithful performance of those people who are elected or appointed to positions of public trust. Examples of officials sometimes requiring bonds include notaries public, treasurers, commissioners, judges, town clerks, and law enforcement officers
• Miscellaneous commercial bonds, such as those that guarantee self-insured workers’ compensation programs