What Do You Understand by Performance Bond?

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The infographic titled, “What are Performance Bonds”, talks about the basics of performance bonds, procedure to get a performance bond and the facts about performance bonds. It also describes the different ways, a bond claim can hurt. Performance bonds or contract bonds are a type of surety bond that are generally issued by a bank or insurance company to assure the satisfactory completion of a project by a contractor. Please go through the given infographic to know more about performance bonds.

What Do You Understand by Performance Bond?

 

 

An Understanding of Different Kinds of Surety Bonds

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Surety bond, also known as guarantee bond or fidelity bond is basically a promise that the third party (insurance company or a bank) will pay the specific amount if someone (principal or contractor) fails to perform the project as per the guidelines of the project. It is generally categorized into 3 main categories:

Contract Bonds: Contract bonds are the guarantee that the contractor will perform the job as per the specifications of a construction contract. It also assures that the contractor will pay the specified amount to the subcontractors, material suppliers and the laborers involved in the project.

Court Bonds: As the name suggests, court bonds are required by courts in the course of cases. These bonds can be further divided into- fiduciary bonds and judicial bonds. The cost of these bonds may vary depending on the type of bond, case and the place.

Commercial Bonds: These types of bonds are usually purchased by companies or working professionals for the purposes unrelated to legal issues, contract projects or other contracted jobs. Different types of commercial surety bonds include business service bond, employee theft bond, alcohol tax bond, license and permit bond, sales tax bond, utility bonds, etc.

Whatever type of surety bond it is, it still the owner that their project will be protected from loss due to your failure to comply with the bond.

Things to Know About a Surety Bonding Company

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Are you seeking a particular kind of bond in America? These days, there are a number of companies in America offering customized surety programs as per the specific needs of their customers. The number of surety bonds that are widely in demand include bid, performance and payment bonds, construction materials supply bonds, court bonds – judicial, fiduciary and probate, depository bonds, licenses and permits bonds, utilities bonds, miscellaneous bonds, etc.

Whatever your requirement or size of the project is, you’ll find a number of companies offering the bonds. However, when selecting a particular surety bonding company in America, make sure to find all the essential information about the company such as:

  • Make sure that the surety company or the bond broker is properly licensed and comply with all state and federal regulations

  • Ensure that all the licenses are valid and active

  • Evaluate the image of the surety company in the market

  • The surety company must possess an in depth knowledge of the surety industry

  • Ask the surety bonding company about what screening they perform on contractors

  • Also, ask about their premium rates that they charge for underwriting the contractor and project

A reputed and reliable surety bonding company can respond quickly to all your bond needs.

How Surety Bond Is Better Than Its Alternatives?

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We all are aware of the definition of Surety Bonds. These are a kind of insurance required by the government or other authorities to allow the principal to carry out certain business activities. Surety bonds are bought and backed by the Principal. There are many alternatives available in the market that can be used in the lieu of the Surety Bonds. All these alternatives have some types of disadvantages associated with them.

Some of the reasons why surety bonds are better than its alternatives are mentioned below

Collateral security: surety bonds do not require any collateral security. Thus, your assets can be solely used for the operating and developing the business. The other options require 100% collateral to provide the guarantee.

Costs: The Surety bonds are issued for a reasonable premium. The cost of surety bond depends upon a number of factors such as the reputation and financial credentials of the applicant. Other alternatives can be expensive in comparison with the Surety Bonds.

False claims: in other methods such as irrevocable letter of credit false claims can be made. Surety Bonds do not involve these risks. Surety companies conduct a detailed scrutiny before allocating bonds to the different applicants.

Aggrandized defaults: other methods require the assets of the business as a collateral security. It leads to decreased efficiency due to low working capital. This may lead to frauds and bankruptcy.

We are a leading Surety provider in Georgia. You can apply online for surety bonds with us.

 

Contract Surety Bonds

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The surety company and insurance company are often confused with each other. Typically a surety company is part of an insurance company but it is not an insurance policy. For the projects that are Public funded, Surety bonds ensure prequalification of the contractors, completion of the project and protection of the taxpaying citizens.

A Surety bond can be described as a three-party contract. The three parties can be described as below

The Principal (Contractor in this case): The principal promises to fulfill all the promises mentioned in the contract.

The Obligee: It a party who is the recipient of the obligation by the principal.

The Surety: The party who is liable to reimburse all the losses in case principal fails to fulfill his obligations.

Contract Surety bonds are the bonds that used in the construction.

The Contract Surety bonds can be broadly categorized into three types:

Bid Bond: This bond ensures that process of competitive bidding is carried out without any discrepancy. If the bidder has acquired this bond and fails to take up or complete a project then the associated loss will be reimbursed by the Surety Company. In this way, it provides financial security to the Obligee.

Performance Bond: This bond ensures that the contractors deliver their performance as per the terms and conditions of the contract. In the case of any default, the contract can be terminated by the Obligee and the performance Bond Company will be liable to get the project completed or reimburse the loss arising out of an incomplete project.

Payment Bond: there are many people, who are associated with the contract such as sub-contractors, workers, suppliers. This bond ensures their financial security by presenting a promise that they will be paid by the contractors on time.