New York Surety Bonds 101: What You Need To Know
When it comes to “big ticket” contracts like construction projects and large equipment purchases, tens of thousands, even millions of dollars can be on the line. So it’s easy to understand why everyone involved wants to make sure promises are kept and obligations are met.
In many situations, a surety bond is required in addition to business insurance coverage before a contract can be awarded or to ensure that the requirements of the contract are met. But a surety bond can also serve as a good faith incentive for a business to award a contract.
What exactly is a surety bond?
A surety bond is basically a form of insurance. If the principal fails to meet its obligations under a contract, a surety bond provides a safety net to the other party (the obligee). The surety company can either find another principal to fulfill the contract or compensate the obligee’s financial loss. Either way, the surety company assures a successful outcome by assuming all financial obligations if the principal fails to deliver.
Are there different types of surety bonds?
There are hundreds of different surety bonds, but three basic types you should know about, especially if you’re in the construction industry. In fact, it’s probably a good idea to discuss surety bonds at the same time you’re going over your construction insurance needs.
- The Bid Bond guarantees that the party bidding on a contract will enter into the contract and provide the necessary Payment and Performance bonds if they’re awarded the contract.
- The Payment Bond guarantees that any suppliers and subcontractors will be paid for work performed under the contract.
- The Performance Bond guarantees that the contractor will perform in accordance with the terms and conditions of the contract.
When do I need a surety bond?
If you’re purchasing an expensive product or service, a surety bond can ensure that you don’t have to worry about finding another principal or losing your investment if your principal fails to deliver.
You can also use a surety bond to assure your customers that you’ll offer prompt and satisfying delivery. This is a great way to build customer confidence and deter expensive lawsuits, since the surety company is assuming the financial liability.
If you’re a business owner who wants to make sure your supplier delivers an expensive product you’ve ordered, you could request a surety bond to safeguard your investment.
If you’re a business who provides a product or service, your customers might request a surety bond to guarantee your delivery.
If your business partner wants a guarantee that you’ll fulfill your end of the contract, you might consider a surety bond.
Most public construction contracts and even some private projects require surety bonds, so if you’re a construction contractor bidding on a project, there’s a pretty good chance you’ll need a surety bond. Surety bonds are especially popular in the construction industry because of the high costs involved. Federal construction contracts require a surety bond before the contract can be awarded, and state, county and city governments may have similar requirements, so check with the appropriate agencies.
How Do I Get a Surety Bond?
Surety Bonds can be obtained right here at Milbrandt Insurance. After submitting all required forms, your application goes through an underwriting process where your business is assessed on character, capability and capacity to fulfill your obligations under the contract. Our surety bond experts walk you though every step of the process so it's easier than it sounds.
Surety bonds can take a lot of the stress out of entering into pricey contracts. They allow businesses to compete for contracts they wouldn’t otherwise be able to secure. And they can give customer confidence a boost when the stakes are high.
Milbrandt Insurance is your New York bonding and surety insurance expert. Contact us today for surety bond advice and New York insurance quotes.