If you own and operate a construction business and place a bid for a job, there is a chance the owner of the project will require that you purchase a surety bond. Without this, the job owner will not allow you to have the job and will simply choose a different contractor that is willing to abide by this requirement. If you have never had to do this before, you will probably have questions about it, and here are three questions you might have.
What Is A Surety Bond?
A surety bond is something that you purchase and is similar to insurance in a sense, but is also very different. A surety bond is designed to protect the person who hires you, while insurance is designed to protect you.
Surety bonds involve three different parties, which are you, the job owner, and the company that sells you the bond. All three of these parties are needed with a surety bond and each plays a role. You are called the principle in the arrangement, and the company that hires you for the job is called the obligee.
Why Is It Needed?
The purpose of a surety bond is protection. The protection is designed for the person or company that hires you to complete work on the job. If you are hired for the job and there is some type of problem that costs the job owner money, the surety bond company will reimburse the job owner for the money lost. For example, if you do not finish the job completely and will not return to the job, the surety bond will kick in. Other examples include if you failed to complete the job correctly or if you messed something up on the job.
In all of these cases, the job owner would not lose any money on the deal, and this is because there was a surety bond in place for the project.
Surety bonds can also cover the costs of subcontractors. For example, if you are hired as the general contractor and are required to pay the subcontractors out of the money you earn from the job, the surety bond will cover the payment to the subs if you fail to pay them. This is called a surety payment bond. There are different types of surety bonds, and you should make sure you understand completely what type the project owner wants you to get.
How Do You Purchase One?
To purchase a surety bond, you must contact a company that sells them, such as NFP, P & C, Inc. These are offered by companies that specialize only in surety bonds, or you might be able to buy them through insurance companies.
When you purchase one, you must state the type you would like. The surety company may then ask you questions about the type of bond you need. These questions are designed to help the company determine how much to charge you for this. Some of the factors that will affect the cost for you are the type of bond you need, the value of the bond, and the level of risk that is involved with issuing the bond.
The level of risk they view might involve looking at your credit score. This is one of the best ways to determine risk for lenders of all kinds, because a person's credit score can reveal how creditworthy a person is.
If you just found out that you will need a surety bond in order to do work for a company, you should call a company today to find out more information and learn how you can purchase one for the job.