Surety bonds are important to the construction industry because they bring the three key entities into a legally binding contract. These entities include:
- the principal or contractor who buys surety bonds to guarantee his/her work
- the obligee or project owner/government agency that needs the bonds to protect against financial loss
- the surety or company that issues the bond and serves as a mediator between the principal and the obligee
In the event a contractor doesn’t meet the terms of a bond, the affected parties can then “make a claim on the bond to gain reparation.” The bond issuer will typically require that a contractor “provide reimbursement according to the bond’s indemnity agreement.”
Bonding also ensures that the bidding process is transparent. When a contractor initially bids for a project, he or she will typically offer bid bonds which guarantee that the contractor “will complete a job for the initial bid without raising the cost.” This encourages bidding from financially stable companies while assuring project owners that they can file a claim to recover any losses incurred from potential price gouging.
Most importantly of all, however, construction bonds “reinforce client trust.” When project owners work with a bonded construction professional, they can rest assured that the contractor has a good reputation and that they will be protected against damages. This is because surety bond providers “conduct thorough background checks” on all individuals who seek bonding.
Your clients depend on you. That’s why Statewide Insurance offers information about bonding and surety companies when you need it most: we’re the brokers you can rely on to help make your business a safe bet for success.