As consumers, we encounter a good amount of transactions and situations where trust is not as high as it could be. Many contractors and other public officials know this, and take the extra step to protect their transactions and proceedings while giving the consumer piece of mind, one of which can be a surety bond.
What is a Surety Bond?
A surety bond is a bond issued by a third party (“surety”) on behalf of a first party, called the “principal” or contractor, guaranteeing an obligation or series of obligations to a secondary party, called the “oblige” or client. In the event that the obligations (such as a building contract or legal procedure) are not met, the third party will recover its losses via the bond.
Types of Surety Bonds and How They Can Protect You
There are 2 main types of surety bonds used throughout contract jobs and industries, each with its own subset of surety bonds. They act to protect the “obligee” (e.g., client, consumer) from fraud or negligence, and can add a measure of trust in a number of situations.
Contract Surety Bonds — This type of surety bondensures a particular contract and that the contractor will adhere to the provisions of a contract. These are used heavily in the construction industry. For example, a Payment and Performance Surety Bond is required for general contractors on all U.S. Federal Government construction projects where the contract price exceeds $100,000.00.
Commercial Surety Bonds — Used for non-contract items, this bond guarantees per the terms of the bond form rather than a contract.
- License and Permit Bonds – Different licenses are required by states and/or counties in order to obtain a license in a given industry, including (but not limited to) mortgage brokers, travel agents, premium finance providers and many more everyday careers.
- Court Bonds – These surety bonds are issued by statute and relate to the courts; broken down into judicial bonds and fiduciary bonds.
- Public Official Bond — Ensures the honesty and faithful performance of people who are elected or appointed to positions of public trust, including (but not limited to) notaries public, treasurers, commissioners, judges, town clerks, law enforcement officers, and credit union volunteers.
- Miscellaneous – Surety bonds that cannot fit into the above categories, but that serve to ensure some act or situation.
How to Obtain a Surety Bond
To obtain a surety bond, one should first find an agent experienced in writing such bonds—either an employee at a surety bond company or an insurance agent with a sideline in issuing surety bonds. Once you or your company pre-qualifies, you may need to sign an indemnity agreement, which may be corporate or personal, and guarantees reimbursement to the surety company for any losses they incur because of the contractor’s performance. Surety companies can also assist you in coming up with a continuity plan to protect your family, your estate and other interested parties.
This article was provided by the National Notary Association. The NNA, founded in 1957, is the leading authority on the American Notary Public office and recognized nationally and internationally as the preeminent educator and promulgator of ethical best practices for U.S Notaries. For more information, visit the National Notary Association’s website: http://nationalnotary.org/