Surety Bonds

/Surety Bonds
Surety Bonds2017-02-22T00:40:52+00:00
construction workers shaking hands

Throughout the past 30 years, Post Insurance has developed a solid understanding of the construction industry. Post Insurance specializes in all types of surety bonds and have trusted relationships with the nation’s leading surety providers. What sets Post apart from other agencies is our ability to solve bonding problems that others can’t. Our surety department has the experience and the expertise to help our clients overcome the most challenging surety problems. We pride ourselves on building solid relationships between the client and the surety company. So whether you’re looking for more bond capacity or improving your financial profile, we can help. The reason more companies look up to Post Insurance is because we continually look after them by delivering the best surety options, period.

Contract Bonds

The bid bond provides financial assurance that the bid has been submitted in good faith and that the contractor intends to enter the contract at the price bid and provide the required performance and payment bonds.

The performance bond protects the owner from financial loss should the contractor fail to perform the contract in accordance with its terms and conditions.

The payment bond guarantees that the contractor will pay certain subcontractors, laborers, and material suppliers associated with the project.

Bonding Basics – Frequently Asked Questions

What is a surety bond?

A surety bond is a three-party agreement between a surety company, an obligee and a principal. The third party (surety company) guarantees to the second party (obligee) the successful performance of the first party (principal). The surety company guarantees that the obligations of the principal to the obligee will be performed in accordance with a contract, statute or regulations. Bonds are used to protect public and private funds from financial loss.

How is a surety bond different than an insurance policy?

A surety bond and an insurance policy are not the same. The cost of assumed losses is calculated into the price of an insurance policy premium. A bond, on the other hand, is an extension of credit with the expectation that the legal obligation will be fulfilled, and subsequently, there will be no loss. Losses are not included in the cost of bond premiums, only underwriting expenses are factored into the rates. A surety company’s fiscal results are severely impacted when losses on bonds do occur.

Why do surety bonds need to be underwritten?

A surety company must determine the risk of a loss occurring if the principal is unable to satisfy the obligation under the bond. Since a bond is an extension of credit, the surety company must review the principal’s financial information and business experience to determine if certain requirements are met to support the bonded obligation. This procedure is known as the underwriting process. Just as a bank evaluates loan applications, surety company underwriters evaluate risks in a similar way by considering business and personal financial statements, credit reports, credit references and other factors.

What are the benefits of surety bonds?

Surety bonds are a mechanism for transferring risk. The surety company assumes the risk of the principal doing business from the obligee. Federal, state and local governments generally require surety bonds to give certainty that business owners and individuals will adhere with various laws safeguarding public funds. For example, license bonds protect the public from business impropriety. Contract bonds protect taxpayers by pledging that projects are finished appropriately, on time and without liens. Court, public official, government and miscellaneous bonds protect and secure public funds and private interests.

What is indemnity?

Indemnity agreements are a standard of the industry. To indemnify means to make whole. Under common law, the surety company has the right to be indemnified by the principal in the event of a loss. The General Indemnity Agreement (GIA) carries out that right by stating that if the surety suffers a loss while providing a bond to the principal, the principal is obligated to make the surety “whole” by reimbursing any losses and expenses.

Surety companies usually require the president to sign on behalf of the company, all owners with over 10% ownership to sign personally, and the owners’ spouses to sign personally. Personal indemnification establishes the principal’s private commitment to the business entity and to the surety company.

New Account Information

Basic information required for establishing surety credit

  1. Reviewed CPA Fiscal year-end financial statements for the past 3 years.
  2. Current 6 month statement from year end date
  3. Aging of Accounts Receivables (same date as Statement).
  4. Personal financial statement on all stockholders.
  5. Current bank letter outlining line of credit.
  6. New account contractors questionnaire.
  7. Current work in progress report.
  8. Last year’s tax return, corporate and personals.

Other Types of Surety Bonds

License + Permit Bond – Guarantee the Principal will comply with applicable codes and regulations by the Obligee (The Obligee is usually a government entity such as City, Town, or State)

Permit Bonds grant a Privilege.

Types Include:

  • Electricians License
  • Plumbers/HVAC License
  • General Contractors License
  • Sub Surface Sewage Bond
  • Right of Way

Supply Bond – A Supply Surety Bond is a type of contract surety bond guaranteeing that a supplier will provide the supplies and materials for the purchaser as contracted. Supply Surety bonds protect the purchaser from project losses due to unavailable materials.

Maintenance Bond – A Maintenance Surety Bond is a contract surety bond that is required by certain jurisdictions. A Maintenance Surety Bond is a bond required in addition to performance and payment bond of a contractor by an owner of a construction project. The maintenance bond is required after the project is complete and protects the owner of the completed construction project for a specified time period, specifically against defects and faults in the materials used.

Probate and Court Bonds – A Probate bond guarantees an honest accounting and faithful performance of duties by fiduciaries/trustees. These bonds are required by courts or statutes as estates of deceased persons, incompetent persons, and minors are set up and administered. (For Estates)

Types Include:

  • Administrator
  • Executor
  • Guardian
  • Conservator
  • Trustee

A Bankruptcy or Equity bond might be required of an appointed fiduciary for the sale of real estate or for property in foreclosure, reorganization or other litigation. This bond guarantees an honest accounting and performance of duties while managing and distributing the assets as directed by the court.

Common Types include Receivers and Trustees.

Other Judicial bonds may be required by a court in cases where someone is seeking legal benefit or relief. These court bonds can be extremely hazardous. Specific supplemental information may be required.

Types Include:

  • Appeal
  • Injunction
  • Attachment Bonds
  • Release of Lien

WE DO THEM ALL, AND MANY MORE!

construction bonding specialists