Print   RSS

Make It Your Business to Know THE Range of Surety Bonds

Adam Groff

July 03, 2014

	5.0/5.0 (1 votes total)
	Rate: Select 1 - Terrible 2 - Poor 3 - Average 4 - Good 5 - Outstanding

As a small business owner, it's important to ensure that any outside contractors you hire complete the job at hand.

With a binding obligation, or surety bond, you can rest-assured that any outside workers you hire will complete the agreed upon work in a timely manner.

This is just one of the many benefits of going the surety bond route when dealing with outside parties.

Brief Description of Surety Bonds

There are many unfortunate stories in the business world where companies hire contractors to complete a project and the contractor walks away before the job is done. Surety bonds protect businesses like yours from contractor default by putting a job completion contract in place.

For example, if your small business hires an outside contractor, a third party surety company would act as a middleman by helping both parties agree on a price, completion date, and the amount of work required.

If the contractor doesn't complete the job, the surety company agrees to find your small business another suitable contractor or compensate you for any financial losses as a result of the incomplete work.

Associated Fees

Because surety companies do provide an essential service, there are fees involved with surety bonds. The fees depend on the value of the contract, the surety company, and the parties involved.

Most surety companies charge one to five percentage of the overall value of the contract, which explains the cost of surety bonds and why there's such a wide range from one surety company to the next.

But, this is a small price to pay considering the peace of mind that goes along with the bond.

Is a Surety Bond Necessary?

The short answer is yes.

If your business has a contract with an outside contractor that is valued at $150,000 or more, then a surety bond is required. Contracts with higher price tags usually have a surety bond included, but still make sure you look for a surety bond clause if you enter a contract at this price level.

As for smaller contracts, the choice is up to you whether you need a surety company to step in.

If it's a contractor you've used numerous times and you trust their work and results, then a surety bond probably isn't necessary. But, if it's a new contractor you've never used, a surety bond is recommended.

Types of Surety Bonds

Most surety companies perform background checks of contractors' businesses, which include reviewing credit scores and work histories.

In other words, surety companies are just as invested in the completion of the project as you are.

But, it's still important to choose the right bond type for your small business:

• Performance Bond - Makes certain the terms and conditions of the contract are completed according to the project time frame.

• Payment Bond - Makes certain subcontractors, suppliers, and any other companies involved on the contractor's side are paid in full.

• Ancillary Bond - Makes certain every part of the contract, whether performance related or not, is completed.

• Bid Bond - Makes certain the bidding contractor agrees to all surety contract terms before the work begins.

The next time you enter into a work agreement with an outside contractor, make sure you have the reassurance of a surety bond.

 Feedback   Submit Article