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Surety Bonds May Be More Complex Than You Realize

On the surface, Surety Bonds seem pretty straightforward. They are a guarantee that you can be held liable for your debt, default, or failure to perform. But there is more to them than that, and there are some very specific types of surety bonds that apply to specific situations and circumstances. Let’s take a look at some of these differences.

One of the first things to know about surety bonds is that they are three-party contracts. The Surety is the party that guarantees performance of the Principal – the party that has the obligation. The Obligee is the third party for whom the obligation is being guaranteed. For example, an insurance company issuing the Bond would the Surety party, the contractor doing the job would be the Principal party, and the client would be the Obligee party. In this example, there are different Surety Bonds that may come into play. In construction, these are called Contract Surety Bonds, and there are 4 of them:

  • Bid Bonds: Ensures the signing of an awarded contract and/or the providing of the required performance and payment bonds needed as a result of an awarded contract.
  • Performance Bonds: Ensures the performance of a contracted job.
  • Payment Bonds: Ensures the payment of suppliers and subcontractors for work done and materials provided.
  • Warranty (or Maintenance) Bonds: Ensures that any issues related to workmanship and material defects found in the original construction will be repaired (while under warranty).

When must these be provided? Privately contracted jobs often have their own requirements, and city and state governments have laws and regulations for these requirements. For Federal jobs, any contract valued at $150,000 or more requires Surety Bonds.

Commercial Surety Bonds are another set of bonds that are typically required as a result of Federal, state, and local governments. These bonds are required of individuals and businesses in certain scenarios related to their performance of a job or role. They include:

  • License and Permit Bonds: These bonds relate to licenses and/or permits for various professions, including mortgage brokers, auto dealers, and others.
  • Fiduciary (or Probate) Bonds: These bonds are required for individuals or parties that administer Trusts under court supervision.
  • Court (or Judicial) Bonds: These bonds relate to plaintiffs or defendants in judicial proceedings and reserve the rights of the opposing litigant(s).
  • Public Official Bonds: These bonds relate to public office holders, and ensure that they will perform their sworn duties.
  • Miscellaneous Bonds: There are a wide variety of less common bonds that would not fit into the above categories. These include Fuel Tax Bonds, Warehouse Bonds, and many others.

As you can see, there is more than meets the eye with Surety Bonds. How can we help you find the right bond for your needs and requirements? Contact Brandon Patterson at 865.453.1414 or email and he’ll be happy to help.