Menu - Contract Surety Bonds
Contract Bond
People involved with the construction industry often need to get a contract surety bond before they can finalize work contracts. It's important for everyone who may need this type of surety bond to understand exactly how it works. This guide is for you.
What is a Contract Surety Bond?
A contract surety bond provides a guarantee that the bonded party (the contractor) will take financial responsibility if they don't meet the mandates of a contract. In that case, the other party in the contract may seek compensation for damages. The surety bond provides a mechanism that guarantees payment to the victim while also guaranteeing that the contractor responsible will be held liable. Contact bonds come in several forms:
- Bid Surety Bonds - Hold a contractor accountable for pulling out of a bid.
- Performance Surety Bonds - Hold a contractor accountable for unacceptable performance.
- Payment Surety Bonds - Hold a contractor accountable for non-payment of laborers or suppliers.
How does a Contract Surety Bond work?
Contracts clearly spell out requirements for all parties involved. When a contractor fails to meet one of those requirements - because they miss deadlines, spend over budget, or perform substandard work etc - the party that hired the contractor may file a claim for damages with the surety bond. Provided that the claim is true and holds up under investigation, the surety agency that issues and backs the bond guarantees fast and full payment to the claimant. When the surety agency must step in to pay, however, the bonded contractor must promptly pay back the full amount of the settlement with interest and fees included.
Who needs to get a Contract Bond?
Anyone creating a contract has the right to include a contract surety bond requirement. Those requirements are common in construction contracts, but not universal. As a general rule of thumb, the larger the job, the more likely that contractors need a surety bond. When necessary, obtain a contract bond ASAP so that contracts can get finalized and projects can get started.
Why do you need a Contract Surety Bond?
People want confidence that the contractors they hire will do exactly what's required of them in the contract. Surety bonds provide that confidence by holding contractors accountable for their actions and by guaranteeing a settlement to those hurt by any contract breaches. In short, surety bonds help protect owners and manage risk and uncertainty. Contactors should expect to encounter many contracts that include one or more surety bond requirements.
Who are the parties involved in a Contract Bond?
Unlike insurance or loan agreements, which involve two parties, all surety bond agreements involve three parties:
- The Principal - The contractor. As the principal, the contractor must obtain a bond and pay for all valid claims.
- The Obligee - The project owner. As the obligee, the project owner may file a claim against the bond for damages caused by the principal.
- The Surety - The surety agency. As the entity that issues and backs the bond, the surety agrees to settle claims from the obligee on behalf of the principal. When that happens, though, the principal must pay the surety back in full.
How to apply for a Contract Bond?
Contract bond applications vary depending on the type of contract being bonded along with the required bond amount. There are fast track applications for smaller contract amounts and what is referred to as full submission applications for larger contracts. The best way to obtain the proper application along with any other submission requirements specific to a given request is to contact a contract bond agent and get the available options. It's best not to waste time and effort by guessing when it comes to applying for a contract bond quote. We can determine the best path to obtaining the bond with the best terms by learning the details of the contract.
How much does a Contract Bond cost?
The contract dictates how large the bond must be - eg. the maximum dollar amount the surety agrees to pay in settlements. The cost of the surety bond, which is technically known as the premium, is a small percentage of the bond total typically 1% to 10% dependent on the application specifics. Underwriters at the surety agency determine the final cost based on the application documents and the application's credit worthiness. Bad credit results in higher premiums. With Viking Bond Service, however, it doesn't have to result in being denied a surety bond.
Viking Bond Service - Issuing Contract Bonds Nationwide
Don't let a contract bond requirement hold your business back. Viking Bond Service makes the bonding process accessible to all. Whenever you're ready to get started, call us at 1-888-278-7389 or complete the contact form on this page and we'll get in touch with you.
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