General Contractors Insurance–the Surety Bonds
If you are an independent builder or contractor, you are likely to be well informed about surety bonds especially the license and permit bonds. License and permit bonds are typically required by a township or state to ensure that the services expected of you are completed according to the set regulations.
What to Know about the Surety Bonds
For any construction and contracting businesses, it is a requirement by particular federal, state and municipal governments to possess a license or permit bond as prerequisites to receive permit or license to conduct particular activities. The bonds act as a guarantee from a surety which is usually an insurance company, to a government that your company will comply with an underlying state and local laws relating to your industry such as the building codes and safety regulations.
For example, if you win a bid to construct a framework for a new school, you will have to buy a surety bond that would compensate the school if you failed to complete the end of your contract or if your job was not up to the code. The the school could then use that money to pay another builder or contractor to get the job done. The insurance company paying the money will hold you responsible for reimbursement.
Key Things about Surety Bonds
The contracting and construction license bonds and permit bonds will always involve three parties: The Obligor or the company providing the bond; the oblige or the client requiring the bond; and the principal who is the contractor or builder in need of the bond.
When you enter a license bond or permit bond, you are vowing to carry out your work and follow the state and municipal rules. The client or the oblige is a part of the agreement as they pay you to perform the work. When you fail to perform the work as required by the contract; the surety will step in to issue the bond and pay the oblige.
A permit/license bond differs from other types of business insurance contracts in that it involves three parties instead of the common two–the insurer and the insured. When it comes to the builders and contractors, the primary difference between a bond and a typical insurance contract is that the surety’s duty is to the oblige, rather than the contractor, even when they pay for the bond.
The the fact that surety claims are not as a result of accidents but a failure to complete a project according to the contract terms, the surety or insurer has a responsibility towards the client to ensure that they prequalify the contractor for the task. To guarantee the performance and integrity to the clients s, the surety will carefully assess the bond history and creditworthiness of the contractor.