Contractor Surety Bonds and the Construction Industry

Surety bonds are a contractual agreement between three parties and are heavily utilized in the construction industry to protect organizations and government entities against fraud and malpractice. When a contractor is contracted to fulfill a promise, they agree with their client certain mutual delivery expectations. They then get a surety party involved so that the terms of the agreement are guaranteed, and the client will not lose out if the contractor fails to meet their contractual obligations.

About two-thirds of all contractor surety bonds concern the construction industry and may relate to bid performance and payment bonds. As well as the construction industry surety bonds are also used in the car dealership industry, by auctioneers, by mortgage lenders, etc. In Europe, they are normally termed bank guaranteed, in France they are called caution, and in the US, they are called Surety.

Surety bonds provide a means for a client to get back the financial loss intrinsic in the failure of a contractor to complete their contractual obligations. In situations that the contractor ?defaults? on an agreement the surety party would investigate and then pay the client. They would then seek to regain the outlay from the contractor. The surety bonds therefore, give clients confidence and increase the commitment of the contractor in all activities relating to the client. They, therefore, provide the ballast to the construction industry, and other industries, and enable business deals to progress in uncertain situations that would otherwise encourage a client not to engage with the contractor.

Source: http://www.garthsworld.org/uncategorized/contractor-surety-bonds-and-the-construction-industry/

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