Ensuring that your business is compliant in Oregon is essential for any business owner, and for many that means in adding a surety bond as part of your business insurance policy. A surety bond is a three-party agreement designed to ensure that a business or individual (the principal) fulfills certain obligations to another party (the obligee). Providing bonding requires an understanding of the businesses financials, contracts and the surety market. Elliott, Powell, Baden & Baker insurance has a dedicated surety team that will take the time to understand your surety needs and provide you with the best options available based on underwriting information. EPB&B has relationships with national surety companies as well as regional markets. This enables us to match your needs to the best program. Contact our office for any of your surety needs.
The three parties involved in a surety bond are:
- Principal: The party required to obtain the bond and perform the obligation. This is typically the business or individual purchasing the bond, for example a contractor working a home remodel
- Obligee: The party that requires the bond and receives protection if the principal fails to meet their obligation.This could be a government agency, a business, or an individual.
- Surety: The company or entity that issues the bond, providing a financial guarantee that the principal will fulfill their obligations. If the principal fails to do so, the surety is responsible for compensating the obligee up to the bond’s limit.
How Surety Bonds Work
Upon approval and payment of the premium, the surety issues the bond, which is a guarantee that the principal will fulfill their obligations per the contract or municipal code. If the principal fails to meet their obligations, the obligee can file a claim against the bond. The surety gives the principal time to respond and/or rectify the situation prior to any claim payments. There are a variety of different ways the bonding company can satisfy a claim. One of those being, paying the obligee up to the amount of the bond, hiring another contractor to complete the work, or hiring additional sub-contractors to help the contractor finish the job. If the surety pays the obligee, the principal is responsible for reimbursing the surety.
Types of Surety Bonds
- Contract Bonds: Common in the construction industry to guarantee the completion of a project according to the contract.
- Bid Bonds: Guarantees that a contractor submits a serious bid and will provide performance and payment bonds if awarded the contract.
- Performance Bonds: Guarantees that the principal will complete the project per the contract.
- Payment Bonds: Guarantees that subcontractors and suppliers are paid for their work and materials.
- Commercial Bonds: Required by businesses to operate legally or fulfill other obligations.
- License and Permit Bonds: Required to obtain various business licenses or permits.
- Fidelity Bonds: Protect businesses against losses caused by dishonest acts of employees.
- Public Official Bonds: Required for individuals in public office to ensure they perform their duties ethically and lawfully.
- Court Bonds: Required in legal proceedings.
- Fiduciary Bonds: Required for individuals managing another person’s assets, such as guardians or estate executors.
- Judicial Bonds: Required in litigation to ensure court orders are followed, such as appeal bonds.
Benefits of Surety Bonds
- Protection for Obligees: Ensures that the obligations of the contract are fulfilled and the public is protected from misdeeds from the contractor.
- Increased Credibility: Shows that the principal is financially responsible and trustworthy, enhancing their reputation.
- Legal Compliance: Provides compliance for business and individuals
- Risk Management: Provides a mechanism to manage risk and ensure that contractual obligations are met.
Contact the surety team at Elliott, Powell Baden and Baker Insurance. We can create a customized bonding program that lets you take on bigger and more complex jobs.