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Surety Basics

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Surety makes business happen.

Surety is a centuries-old concept to guarantee faithful performance of an obligation. Virtually every business, commercial and construction, will benefit by being able to post security, whether it’s for compliance with statutory requirements or as security on a construction project. Surety bonds are the most efficient form of security available to business owners.

There are two primary types of surety bonds: construction and commercial.

  • Construction Surety

    Public works contracts require security. The bond is a guarantee that, should a contractor fail to execute work as promised, the surety will deliver the project according to the original contract, which protects taxpayers from financial harm. The bond also guarantees that tradesmen and suppliers who work on the project will get paid. And the bond promotes building quality and safety by ensuring everything complies with building codes.

    On privately-funded construction, owners make use of performance and payment bonds to protect their investments and provide protection to banks and lenders that are providing the construction financing.

    Your ability to provide surety bonds on public or private work can open new markets and create opportunities for your company.

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  • Commercial Surety

    Commercial surety may also open doors for businesses through the permit and license process and satisfy a number of statutory requirements. In many cases, other forms of security are acceptable, but a commercial surety bond posted in lieu of other capital enables business owners to retain and deploy capital elsewhere. A surety bond, in contrast to other security, also offers a measure of protection to the principal by inserting the surety into the claim process.

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The principal, obligee and surety.

A surety bond is a three-way agreement between the principal, obligee and the surety. When a contractor provides surety to bid on a public construction project, the contractor is the principal, the government agency or project owner is the obligee and the bond is provided by the surety company. If the principal fails to honor its contract, the surety agrees to be answerable for the debt owed to the obligee by the principal.

Surety can be a powerful ally.

Surety is fundamentally a credit-based relationship where a trusted partner can add significant value. The surety may pre-qualify a contractor for various construction projects, ultimately supported by performance and payment bonds. Or, a surety may attest to an individual’s financial substance by agreeing to post a bond for a commercial or court transaction and the payment of some duty or obligation.