Nexus Partners Insurance will place surety bonds for contractors, professionals and other business clients. Since we work with several surety companies, we are able to compare premiums, limits and financial standing, identifying the solution that provides the greatest benefit at a reasonable price. Call our office for assistance with a performance bond, fiduciary bond or other surety bond.
An agent from our commercial services group will be happy to provide quotes for all of your business insurance needs.
Overview
A surety bond or surety is a promise to pay one party (the obligee) a certain amount if a second party (the principal) fails to meet some obligation, such as fulfilling the terms of a contract. The surety bond protects the obligee against losses resulting from the principal’s failure to meet the obligation.
A surety bond is a contract among at least three parties:
- The obligee – the party who is the recipient of an obligation,
- The principal – the primary party who will be performing the contractual obligation,
- The surety – who assures the obligee that the principal can perform the task
Through a surety bond, the surety agrees to uphold — for the benefit of the obligee — the contractual promises (obligations) made by the principal if the principal fails to uphold its promises to the obligee. The contract is formed so as to induce the obligee to contract with the principal, i.e., to demonstrate the credibility of the principal and guarantee performance and completion per the terms of the agreement.
The principal will pay a premium (usually annually) in exchange for the bonding company’s financial strength to extend surety credit. In the event of a claim, the surety will investigate it. If it turns out to be a valid claim, the surety will pay it and then turn to the principal for reimbursement.
A key term in nearly every surety bond is the penal sum. This is a specified amount of money which is the maximum amount that the surety will be required to pay in the event of the principal’s default. This allows the surety to assess the risk involved in giving the bond; the premium charged is determined accordingly.
Contract Surety Bonds
Contract bonds, used heavily in the construction industry, are a guarantee from a surety to a project’s owner that a general contractor will adhere to the provisions of a contract.
Included in this category are: bid bonds (guarantee that a contractor will enter into a contract if awarded the bid), performance bonds (guarantee that a contractor will perform the work as specified by the contract), payment bonds (guarantee that a contractor will pay for services and materials), and maintenance bonds (guarantee that a contractor will provide facility repair and upkeep for a specified period of time). There are also miscellaneous contract bonds that do not fall within the categories above, the most common of which are subdivision and supply bonds.