A surety bond is a promise to be liable for the debt, default, or failure of another. It is a three-party contract by which one party (the surety) guarantees the performance or obligations of a second party (the principal) to a third party (the obligee).
The “obligee” is usually a government agency. Other “obligees” might be requesting a fideltiy bond or a court-related bond.
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TYPES OF BONDS AVAILABLE
BUSINESS LICENSE or PERMIT BOND
A type of commercial surety bond is required by Federal, State, and local government agencies before business owners can be issued a license or a permit for certain types of work, including contractors, car dealerships, and notaries.
BID, PERFORMANCE, and PAYMENT BONDS
In order to bid for and then perform a construction project, you will likely need three bonds: a bid bond, a performance bond, and a payment bond. These three contract bonds work hand in hand to provide security for all parties involved in construction contracts.
A bid bond certifies that if you are awarded the job you will perform that job, and guarantees that you will secure a performance bond in order to complete the construction.
The performance bond certifies that you will complete the project. It offers protection in the event that you are unable to complete the job, they can make a claim on the bond to hire another contractor to finish construction.
The payment bond protects your subcontractors, suppliers, and laborers, and ensures that they are all paid properly. In the event that they are not paid, they can make a claim against the payment bond to receive money owed to them.
FIDELITY BOND
A fidelity bond is insurance protection that covers policyholders for losses that they incur as a result of fraudulent acts by specified individuals. It usually insures a business for losses caused by the dishonest acts of its employees.
ERISA BOND
A special insurance policy that applies to health and retirement plans. With an ERISA bond, these plans are protected against losses that result from fraud or dishonesty. The bond was created to address public concern that pensions and other employee benefit plans were being abused and mismanaged.
PROBATE or COURT BOND
The purpose of a probate bond is to protect the beneficiaries or creditors of the estate from harm caused by the malfeasance or negligence of the executor or administrator. While a court bond is a general term for all surety bonds an individual would need when taking an action through a court of law. These bonds may be needed to reduce the risk of financial loss or even ensuring the fulfillment of a court-appointed task.
NOTARY BOND
California Notaries are required to purchase and maintain a $15,000 Notary surety bond for their entire 4-year term of office. The Notary bond protects the general public against financial loss due to improper conduct by a Notary.
FINANCIAL GUARANTEE BOND
Financial guarantee bonds guarantee payments on a financial obligation. These bonds come in many forms from tax bonds to commercial lease agreement bonds and guarantee that the financial obligation will be satisfied.