In the current times, the surety bond is one of the prime insurance policies that has attained huge popularity and is doing their rounds in the market. This is a type of insurance where a third party pays the second party on behalf of the first party. Hence this is a type of transaction where typically three parties are involved. The three parties are known as the oblige one who receives the payment, the surety the one who pays and the principal on whose behalf the payment is being done by the surety or the insurance company.
To most of us, this might look like an arrangement that has come out of the womb of the modern economic and financial system. However, this is a system that has a long history behind it. The forms of surety bonds have been going on in the human civilization and money system for as long as the times of the Mesopotamian civilization. During those times it was known’s as the suretyship. This bond states that the person who was o pay the king or the state entered into a contract with another person or farmer who will pay the state but will later get the payment with perks from the actual payer.
This is a scenario that is seen even in the current times.
The Construction Scenario – The system of the contractor surety bonds happens to be an in-vogue practice when it comes to the contraction industry. A construction project is one that has Avery high investments and very high stakes. In addition to this, the number of stakeholders is quite large in number. Hence money from a lot of sources are looked into a single project and a lot of finances are kept hanging. To add to the dilemma anybody can turn a general contractor. There is no way of knowing that the person who is making the lowest bid will be the most dependable contractor, who will finish the project on time and will pay all the subcontractors in a safe and secure manner. This is where the surety bonds come into the scenario of the construction industry.
It is for this reason alone that in most of the federal and government contracts bidding the people who are applying must get a surety bond. This is mandatory in most of the states. However, the amount of bond that needs to be taken, the amount of principal that needs to be paid and the other rules and regulations could vary from state to state. This is how it is ensured that the construction projects will end at the right time and with the right numbers.
Different Types of Surety Bonds – There are different types of surety bonds that ensure the safety of the project owners and the stakeholders who are allied to a construction project.
- The bid bond ensures that the people who have bid have done so in good intentions and all due payments will be cleared in this context.
- The performance bonds ensure that if the contractor fails to perform through the contractor surety bonds the rest of the people related to the project will get all the payment.
- Lastly, comes the payment bond which is a type of contractor surety bonds that ensures that all the people liable to get some payment will get their dues cleared.
These surety bonds act as great catalysts for the construction industry and fuels a number of government construction projects.