- Surety bond
A surety bond is a
contract among at least three parties:
* The principal - the primary party who will be performing a contractual obligation
* The obligee - the party who is the recipient of the obligation, and
* Thesurety - who ensures that the principal's obligations will be performed.Through this agreement, the surety agrees to uphold—for the benefit of the obligee—the contractual promises (obligations) made by the principal if the principal fails to uphold its promises to the obligee. The contract is formed so as to induce the obligee to contract with the principal, i.e., to demonstrate the credibility of the principal and guarantee performance and completion per the terms of the agreement. Contract bonds guarantee a specific contract. Examples include performance, bid, supply, maintenance and subdivision bonds. Commercial bonds guarantee per the terms of the bond form. Examples include license & permit, union bonds, etc.
Suretyship bonds originated hundreds of years ago as a mechanism through which trade over long distance could be encouraged. The first corporate surety firm in the
United States was United States Fidelity and Casualty Company of New York, established in 1880. According to the [http://www.surety.org Surety & Fidelity Association of America] annual US surety bond premiums are approximately $3.5 billion. Stateinsurance commissioner s are responsible for regulating corporate surety activities within their jurisdictions. The commissioners also license and regulate brokers or agents who sell the bonds.Surety bonds are frequently used in the
construction industry: in order to obtain a contract to build the project, the general contractor (and often the sub-contractors as well) must provide the owner a bond for its performance of the terms of the contract. Conversely, owners and contractors may also provide payment bonds to ensure that subcontractors and suppliers are paid for work done. Under theMiller Act , payment and performance bonds are required for general contractors on all U.S. federal government construction projects where the contract price exceeds $100,000.00.Surety bonds are also used in other situations, for example, to secure the proper performance of
fiduciary duties by persons in positions of private or public trust.A key term in nearly every surety bond is the "penal sum". This is a specified amount of money which is the maximum amount that the surety will be required to pay in the event of the principal's default. This allows the surety to assess the risk involved in giving the bond; the
premium charged is determined accordingly.If the principal defaults and the surety turns out to be insolvent, the purpose of the bond is rendered nugatory. Thus, the surety on a bond is usually an
insurance company whose solvency is verified by private audit, governmental regulation, or both.The principal will pay a premium (usually annually) in exchange for the bonding company's financial strength to extend surety credit. In the event of a claim, the surety will investigate it. If it turns out to be a valid claim, the surety will pay it and then turn to the principal for reimbursement of the amount paid on the claim and any legal fees incurred.
A bail bond is a type of surety bond used to secure the release from custody of a person charged with a criminal offense. Under such a contract, the principal is the accused, the obligee is the government, and the surety is the
bail bondsman , and if the accused fails to appear, a fugitive recovery agent is the surety.Examples
Examples of Surety Bonds:
*Bid Bond
*Performance Bond
*Advance Payment Bond
*Retention Payment Bond
*Maintenance Bond
* Contractor License and Permit
*Court
*Customs
* Lost Securities
* Money Transmitters
*Mortgage broker s
* Motor Vehicle Dealers
* Notary
* Patient Trust Funds
*Public official
* Tax bonds
* Subdivision
*Utility deposit
* Wage and Welfare/Fringe Benefit (Union)
* Public Warehouse
*Supply bond s
**Online Transaction Supply Bonds
* Self–InsuredWorkers compensation
* Insurance Company Qualifying
*Reclamation Examples of
fidelity bond s:
*ERISA
* Business Service Bonds
*Public Official
* Manufacturers
* Small Businesses
*Non-Profit Organizations
* Real Estate Managers
* Title Agents
*Financial institution s
* Precious Metal Exposures
* Armored CarLicense and permit bond
"License and permit bonds" are a general class of surety bonds required of a person or entity to obtain a
license or apermit in any city, county, or state. These bonds guarantee whatever the underlyingstatute ,state law , municipal ordinance, or regulation requires. They may be requirements for a licensed driver to be present in the vehicle; for example, Judy is a licensed driver and her guardian is anywhere in the automobile, not necessarily in the front or back. Certaintax es and fees and providing consumer protection may be required as a condition to granting licenses related to sellingreal estate ormotor vehicle s andcontracting services.See also
*
Co-signing
*Fidelity Bonds
*Fiduciary
*Indemnity
*Insurance
*Performance Bond
*Submittals (construction)
*Shop drawing
*Testator External links
* [http://www.fms.treas.gov/c570/c570.html Circular T-570] - List of federally licensed bonding companies approved by the US Treasury.
* [http://www.sio.org/private/fprivate1.html SIO] - Surety Information Office.
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