Surety bonds are used as part of contracts that involve three or more people. The three participants in the contract are the obligee, the principal, and the surety. The surety promises and provides a guarantee that the principal is going to do what they promise for the obligee. This helps to protect the obligee in the case of any loss, debt, failure, or default from the principal. If the principal fails to do what they are supposed to do, the surety party is required to fulfill that duty for the obligee.
Surety bonds are most commonly used for contracts that involve the interest of the general public. However, they can also be used by private individuals and companies quite effectively. There are countless types of surety bonds depending on who is involved and what the project is about. Generally, surety bonds can be categorized as either commercial bonds or contract bonds. Here are some situations in which using a surety bond will be useful.
Construction Bonds
The most common type of contract bonds are construction bonds. These are used in both commercial and private projects and can be used by the state, government, private individuals, or companies. In most cases, large construction contracts are awarded through a bidding process and the contract is designed to protect both the client and the contractor. Since there are multiple parts to the entire construction project ranging from the bid itself to the final handover of the project, there are different bonds that can be used to insure different parts of the project. Trying to insure the entire project through just one bid is not a feasible option. Moreover, different parts of the project might be awarded to different contractors, so they all need their own unique surety bond.
Fidelity Bonds
There are also some situations in which a person you are working with or an employee working in your organization has the power to harm you or your business. For instance, accountants not only have access to cash, but they also have the ability to manipulate financial documentation. In both cases, this could cost the employer a lot of money and can even bring the business down.
Fidelity bonds help to cement this relationship by bringing in a third party and also laying down some ground rules for the job ahead. You can find a lot of information on this website about how to use fidelity bonds and how to make the most of them. There are many kinds of fidelity bonds depending on the nature of the relationship that they are trying to facilitate. To get the best coverage, it is important that you find a bond that addresses the specific risks that you are exposed to in your situation.
Commercial Bonds
Commercial bonds have many different uses and just like construction bonds, they include several types. Commercial bonds are commonly required by regulatory agencies and governments to permit contractors and businesses to conduct business in a certain area or in a certain industry. For example, businesses such as auto dealers, plumbers, and liquor store owners need to have a surety bond in order to be able to get a permit for their business. Similarly, certain areas of business are only available for those that have a specific bond that assures the regulatory authorities that their organization meets all requirements and understands that there are consequences if they fail to meet regulations.
Court Bonds
In many criminal cases, the court also asks for the defendants and the plaintiff to get a bond for their case. These court bonds are mostly used to ensure that the people involved in the case will attend the court hearings and will comply with everything that is required for the case to be processed in court. Within court bonds, there are also further subtypes such as indemnity bonds and replevin bonds that have specific uses.
There are some laws that are federal laws and others that are state laws. State laws can vary from one place to another. Generally, bonds are issued at the state level. If a person has a permit for business according to a bond in one state, it won’t be valid in another state. In other cases, a person needs federal bonds. These bonds will be valid throughout the country or across every jurisdiction that complies with federal regulations. In order to get a bond, you will need to work with a surety company. These are private companies that issue the bonds and also take care of all the technicalities associated with the bond. For your own safety, you can have the bonds reviewed by your lawyer or any other third-party professional, just to make sure it meets all your needs.