If you have to get a surety bond, you are the bond’s principal. By providing the bond, you’ll be able to guarantee clients that you can meet their contractual obligations. Still, just getting a bond isn’t enough. You have to complete a few requirements and stipulations to keep the bond in good standing. Surety bonding is an ongoing process. Every contractor should know their roles in the deals. Here is a little more information.


Who is the PrincipalSurety Bonds


Surety bonds involve a few different parties.


First, there are the principals. These are the businesses, contractors or entities that buy the bonds. The bonds are financial guarantees to others. Should the principal renege on the stipulations of a contract, they might have to provide another party with compensation. Because they didn’t follow the rules of the contract, the principal might cause their clients financial losses. The bond can help them make up for those losses.


Other parties in the deals are obligees and sureties. Obligees are your clients who have contracts with you. Many obligees will require surety bonding of anyone they hire for a job. The bond will help them know that if something goes wrong, the principal can compensate them.


The surety is the financial agency that manages a surety bond. It is something like an insurance company. Obligees will make their claims to the surety company. Then, the surety or the principal will have to compensate the obligee for their losses. So, what are the requirements of the principal in the meantime?


Step 1: Maintain the Bond


If you have to carry a surety bond, then it is your requirement to keep the bond active. In many cases, contracts will explicitly state that you must carry a bond of a certain value. If you don’t maintain proof of the bond, you could breach the contract. To maintain the bond, you’ll have to pay a premium on it.


Step 2: Provide Proof of Bonding


You’ll usually have to provide proof of the bond to your client. That proof should include the agreed on financial limits of the bond. It should also include instructions on how to file a claim on the bond for compensation.


Step 3: Understand Your Compensation Obligation


A bond is not like an insurance policy. It doesn’t provide a financial settlement. Instead, it guarantees one. The bond says that you, the principal, will repay the client for their losses. The bond will not offer a payout in place of you paying. Rather, it will simply say that you will pay the client if you break the contract. In many cases, you will pay the client directly for their losses. In other cases, the surety company will issue payment to the obligee. Then, you will have to repay the surety company.
Posted 3:41 PM

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