A surety bond is an agreement between three parties ensuring an obligee that the principal will meet a certain set of requirements. The principal (you) agrees to comply with the terms established by the bond, while the surety agrees to make good if you fail to live up to your end of the contract. Surety bonds are often required for contractors so that others on the receiving end of their work can be protected from potential monetary loss due to faulty or failing services.
How do they work?
To understand how surety bonds work, it’s important to understand what they’re used for. Surety bonds are most often used as guarantees for the completion of a specific task or project and are generally required by law. They can be used by any industry, but they’re most commonly associated with government contracts and construction projects.
If you go bankrupt and your business can’t cover its debts, the surety company will step in and pay those debts. Businesses that provide valuable services and products to consumers, government agencies, and other businesses use surety bonds so they can get paid for work performed.
The new Department of Education is issuing $1 billion in surety bonds to protect schools from losses caused by fraud or mismanagement.
Surety bonds can be used in construction to secure payment or performance on a contract or agreement. For example, a construction company might secure payment from a customer by posting a surety bond with the government agency that awarded the contract. If the contractor doesn’t finish construction and then pays subcontractors and suppliers, the surety company will step in and ensure that those parties are paid.
Surety Bonding In Construction
If you are starting a new business or want to bid on government contracts, you may need to obtain bonds before you can do so. With the Miller Act that was implemented nearly 80 years ago, the federal government has made certain that those who perform work or supply materials for federally-funded projects are protected from unpaid bills.
With the passage of time, the requirements of the Act have been expanded to include not only construction projects but also services and even non-construction projects.
We Can Help
If you’re unsure of the types of bonding you will need or what kinds of forms and documents to fill out, just remember that IDG is always here to help. We can walk you through the process and make sure you’re fully prepared to take on any job without hesitation. So if you want to grow your business and get started with bonding today, contact us at (914) 633-3333.