You are here: Home / Archives for surety bonds

Understanding Surety Bonds

July 6, 2012 By

surety bond creates client trust

Surety bonds can help generate trust between you and your clients. Call Statewide Insurance Brokers for more information.

You may be a construction industry veteran, but it’s quite possible that you are one of the many construction professionals who doesn’t completely “get” surety bonds.  As a recent article in Construction Digital online reports, “understanding of [surety bonds] is…surprisingly limited”: moreover, the lack of full comprehension extends to the very contractors who use them.

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.

For more information about Statewide Insurance Brokers Surety Bonds, call 888-258-0272.

California to Toughen Up Surety Bond Regulations for Trucking Brokers

May 9, 2012 By

In California, the California Senate is bringing in stronger legislation to ensure that construction truck operators are protected from unscrupulous brokers who do not comply with surety bond regulations.

Since January 2011, California law has required that a broker of construction trucking services post a surety bond to ensure payment to a dump truck operator whose services were brokered. The driver is also required to provide certification of his operator’s permit to the broker.

The brokers must secure a surety bond of at least $15,000 to ensure payment for the operators and the failure to do so is a misdemeanor and could result in up to a $5,000 fine.

The new legislation before the Senate Transportation and Housing Committee would require construction trucking brokers to disclose a copy of their surety bond.

Sen. Kevin de Leon, D-Los Angeles, told panel members that the change that would improve transparency in notification requirements.

“There still are very unscrupulous brokers out there that continue to dodge their bonding responsibilities under the law by either never attaining a bond or refusing to provide access to the bond to subhaulers,” de Leon testified. He noted as well that existing law does not include the requirement that brokers notify others of the bond information.

The result will be that if the work has been completed and the broker has not made payment, the dump truck operator can easily access the bond information to file a claim.

Call Statewide Insurance Brokers at (888) 258-0272 today for fast, free quotes on your insurance needs.

Types of Surety Bonds

April 9, 2012 By

In the construction business with the current economic climate, project managers and government departments are more likely to be more concerned about safeguarding projects against unexpected and rising costs and performance failures than ever before.  Consequently the need and demand for surety bonds continues to be high.

It is important for contractors to know that surety bonds are not insurance but an extension of credit in lieu of putting up cash for the terms required by the owner or named third party.  The  surety company which issues the bond is there to ensure collection if the contractor  breaches the terms of the bond.  Any financial penalty for failure to meet the bond’s terms will be borne by the contractor not by the surety company which will collect that penalty on behalf of the named obligee.

There are basically three types of surety bonds in construction.

  1. Bid Bond - These surety bonds relate to the bidding process and guarantee that if the contractor is awarded the contract based on his bid, he will perform the job for the approved price.  Generally, if the bid winner refuses to take on the job, a surety bond in such case will force the defaulting contractor to reimburse the bid issuer with the difference between the next lowest bid and his, along with any penalty as stated in the bond.
  2. Performance Bond – This type of surety bond is there to ensure that the contractor performs the work as agreed to in the construction contract.  This protects the obligee or owner from financial losses should the contractor not live up to his agreements as stated in the bond.  Again the amount will depend on the wording of the bond.
  3. Payment Bond – A payment bond is there to protect the owner or obligee from liens placed on the project from unpaid suppliers and sub-contractors should the contractor not pay them.  Again, the contractor will be penalized as per the terms of the bond.

Statewide Insurance is there to handle your surety bond needs in Texas, California, Oregon, Minnesota, Virginia and Nevada.  Give us a call today to find out what we can do for you.

Call Statewide Insurance Brokers at (888) 258-0272 today for fast, free quotes on your insurance needs.
Photo credit: pixbox77