Surety Bonds perform an essential role in the construction industry. A Surety Bond is a three-way contract between the surety (the company providing the bond), the principal (the contractor) and the obligee (the project owner). The principal usually applies for the Surety Bond with the surety and it is to protect the obligee’s interest.
A Surety Bond is simply a three-party agreement or contract where the first party, the surety, guarantees the performance of the second party, the principal (contractor), if they default on their obligation to the third party, the obligee (project owner).
The reason Surety Bonds work so well is simple. They help to take the risk out of a risky business. Surety Bonds are designed to protect your interest from the actions of a third party.
There are Four Major Categories of Surety Bonds:
There are variety of Surety Bond types designed to meet your needs. In fact, almost any contract or obligation can be bonded. But, the four most common types of Surety Bonds include Contract Surety Bonds, Commercial Surety Bonds, Court Surety Bonds, and Fidelity Surety Bonds.
1. Contract Surety Bonds:
In the construction industry, one of the most common bond types are Contractor Surety Bonds. They include Bid Bonds, Performance Bonds, and Payment Bonds. All are needed for different purposes to ensure that the interests of the obligee are protected, especially if the principal fails to meet the terms of their contract.
Bid Bonds financially protect an obligee if the bidder awarded the contract fails to sign the contract and fails to provide the essential Performance and Payment Bonds.
Performance Bonds, on the other hand, are put in place to protect the obligee from monetary loss if the contractor fails to deliver the job according to their agreement.
Payment Bonds are there to guarantee that the contractor is going to pay the workers, subcontractors, and material suppliers involved in the project.
A Contract Surety Bond protects the project owner by guaranteeing that the contractor will follow the specifications and perform the work laid out in the construction contract. It also ensures that certain labor, materials suppliers, and subcontractors will be paid.
2. Commercial Surety Bonds:
Commercial Surety Bonds are Performance Bonds in which the surety (the company providing the bond), guarantees to the obligee (usually the public). The principal usually applies for the Surety Bond and are usually mandated by federal, state or local government agencies or private owners. The most common commercial contractors are manufacturers, wholesalers or retailers – as well as all businesses with a license get a Commercial Surety Bond. These bond types provide a guarantee by the principal of financial performance.
3. Fidelity Surety Bonds:
Fidelity Bond are a type of surety designed to protect a company or customers against specific types of loss that can include employee theft, malpractice due to forgery or false documentation and general theft or fraud. Fidelity Surety Bonds typically protect against the loss of money, equipment, or personal supplies.
4. Court Surety Bonds:
Court Bonds are a general term used for all Surety Bonds that are needed by individuals when they are involved in pursuing an action through a court of law. A Court Surety Bond can also be required by an attorney or similar entity before a court proceeding to ensure protection from a possible loss. These Court Surety Bonds typically guarantee the payment of costs associated with lawyer fees or appealing a previous court’s decision. Other Court Surety Bonds protect an estate against malpractice of the estate’s administrator.
Court bonds can be divided into two main categories: Judicial Bonds and Fiduciary/Probate Bonds. The main difference is that a Judicial Bond promises payment of sum of money that would be required in a court case, while a Fiduciary Bond only promises faithful and honest performance of a duty.
What Do You Need for a Surety Bond?
Before you apply for a surety bond in Florida, make sure that all your documents are in order so that you can expedite the whole process. Essential documents include:
Financial Records: Surety companies will ask for both personal and business records. For businesses with less than $20 million in sales, you will need to provide financial statements for the last year and for the interim period in this year, most recent personal and corporate tax returns, financial records of majority shareholders, and a bank reference letter. Companies with more than $20 million in sales need to show their audited financial records.
Resumes: Some surety companies may ask for resumes of key personnel. Make sure to highlight any relevant experience.
WIP Form: WIP stands for “Work in Progress” form. Ask your surety company for the relevant form. This details all the projects you have completed recently, ongoing work, and any outstanding surety.
Insurance: Some surety companies may insist on work insurance to see that there are no uninsured liabilities.
References: Companies issuing Surety Bonds in Florida will ask for references from associated parties, such as past clients, suppliers and so on. The references are an indication of other’s trust in your ability.
Apply for a Surety Bond Online:
Surety Bonds are usually required for contractors to work on projects. Without it, a contractor might not be able to work with project owners, workers, and material suppliers. These are the people who play a significant role in the successful completion of contracted jobs. Surety Bonds protect project owners if the principal does not fulfill their obligations per the terms of their agreement.
Given the number of construction projects around the country, there are many contractors bidding to be chosen for these projects. Surety Bonds are usually required to even bid on projects. To apply for a bond, you must find a reputable Surety Bond insurance company to apply with. You want to find a surety company with a good reputation and positive reviews.
Before choosing a surety company, make sure they have the available resources to support the project you are bidding on.
A Brief History of the Surety Bond:
The earliest known surety contract was written on a Mesopotamian tablet. The contract was between a farmer who could not take care of his fields because he was drafted into the king’s army, and a neighboring farmer who offered to work his fields. They agreed to split the profit from the harvest evenly. The world’s first known surety broker was a local merchant who guaranteed that the second farmer would keep his word.
While sureties have a long history, it wasn’t until the late 19th century that surety bonds became commonplace. The year was 1894 and Congress recognized the need to protect taxpayers and passed the Heard Act in 1894, which required surety bonds on all federally funded projects.
Fast-forward more than a century to the year 2017.
Today, federal law requires performance and payment bonds for all public work contracts in excess of $100,000 and payment protection for all contracts above $25,000.
But obtaining a Surety Bond can be a grueling, time intensive process. That’s why more companies turn to America’s number one provider of Surety Bonds, Nielson, Hoover & Company.
No one knows Surety Bonds like NHC:
At Nielson, Hoover & Company, the only thing we do is Surety Bonds and we do it better than any other company out there. We specialize in all types of Surety Bonds – from Bid Bonds, Performance Bonds, Payment Bonds, and Maintenance Bonds to Commercial Bonds, Judicial Bonds, License & Permit Bonds, Fidelity Bonds, Payment & Performance Bonds, Public Official Bonds, and Subdivision Bonds.
At NHC, our people make our company. In fact, we have the largest staff of experienced professionals – larger than any other agency, larger than any surety company in the market.
We do business on your terms. That’s why we offer you multiple ways to request your bonds. Whether it’s online, an email, a fax, in-person or through our #1 Bond Request app or the industry’s first and only web-based portal, “Suretegrity”, where you can apply online and securely print a certified surety bond with just the click of a mouse. No matter how you apply, our simple application process is designed to make the job fast, efficient and accurate.
We are experts in all aspects of the construction industry, from understanding contracts and subcontracts to the details of how the industry’s accounting procedures and sureties function. This comprehensive knowledge, combined with a keen sense of the markets, allows us to tailor the perfect surety solution for our clients.
Over time, we’ve become trusted advisers to both the agents and the surety companies we represent.
Because of our knowledge, experience and the relationships we’ve built, only Nielson, Hoover & Company can guarantee you better service, more negotiating power and better terms than anyone else in the industry.
Nielson, Hoover & Company. You don’t become number #1 overall, unless you’re #1 through and through. To start working with the nation’s number one provider of Surety Bonds, visit nielsonbonds.com or call 305.722.2663.