You may be asked to get a commercial surety bond if you run a business. These bonds ensure that your company adheres to specific codes and regulations.
Commercial surety bonds come in wide different varieties. What is covered, how it operates, and how much it costs vary depending on the type.
A contractor must correctly complete (or perform on) a project by the terms of a performance bond, one of the commercial surety bonds type provided by an insurance company. Performance bonds assure project owners that a contractor will complete a job. These bonds can cover many projects, including building roads, bridges and retirement homes.
If a contractor fails to complete the contract, the owner can claim the bond to compensate them for any losses they have suffered. In most cases, the surety will either pay for the completion of the project or hire a new contractor to complete it for them.
Performance bonds are a common requirement for major public construction projects such as bridges and roads. However, they can be required by private developers and owners as well.
Payment Bonds guarantee contractors will pay their subcontractors, suppliers and laborers under a construction project contract. These bonds are a legal requirement for bidding on federal and state construction projects and sometimes for private contracts.
The benefits of a payment bond are that it gives subcontractors and material suppliers confidence in working on the project, knowing they will be paid. Moreover, it reduces the administrative burden on owners since the surety will take over and make payments.
However, it is essential to understand that a claim under a payment bond may only be accepted by the surety after filing a preliminary notice within a specified period after work has been completed. It could lead to a claim being denied, which could have adverse severe financial ramifications for the owner if you fail to do it.
Employee dishonesty bonds and business services bonds are other names for fidelity bonds, which are insurance policies that protect businesses and their customers from losses caused by employee theft. They are most commonly used by businesses that offer a favor and have employees who regularly work with clients’ personal property, such as janitorial services or HVAC companies.
A fidelity bond provides first-party coverage for the business or customer and third-party coverage for employees who commit acts of theft. This bond is also helpful for employers who want to hire job applicants with a history of criminal behavior.
Some businesses that require a fidelity bond include financial services firms, nonprofits and medical offices. These businesses may be especially at risk for employee theft because they handle cash or other valuable items that could be stolen.
A maintenance bond, also called a warranty bond or contractor’s warranty bond, guarantees that all work on a construction project will be finished to agreed-upon standards, if not higher. Suppose problems are found with the finished piece. In that case, the project owner can file a claim against the bond to obtain financial compensation for damages caused by the contractor’s shoddy artistry or other problems.
These bonds are a necessary part of the construction industry because they protect clients from contractors’ shoddy work. They also help prevent contractors from coming up with cash to pay for client claims when their projects fail to meet clients’ expectations.