When you go to hire a contractor or many other types of business professionals, you’ll hear that they need to be bonded. You know they need it, but you really don’t know what it means to you and your ability to do business with these people. In reality, it’s similar to insurance but rather than insuring against a storm or accident, you’re insuring against the failure to complete a deal, contract, or finish a certain task.
There Are Several Types Of Bonding
There are performance bonds, surety bonds, fidelity bonds, and several other types available. When a company is bonded that means that an insurance company has been hired to pay damages if certain conditions of a contract are not met. Sometimes it will be for completion of the project, other times it’s to guarantee honesty. Just because a company is bonded doesn’t always mean that you’ll be able to collect money if they don’t perform exactly as they agreed, it still depends on what is actually written in their bond.
The company, contractor, or other professional that is bonded will usually be called the “Principle” and the bond will be there to make sure they perform certain named obligations that will be written in detail in the bonding contract. However, for the insurance company to be liable to pay the damages the breaking of the bond contract will have to exactly meet the requirements. Sometimes a business is just generally bonded because that is what is required for them to get a business license and insurance to conduct business in their state.
There are other bonds that are more specific and will be expressly written to cover just one obligation and not be general at all. For instance, a major general contractor may have a completion bond on just one project. This will be a guarantee that the project will be done to certain specifications before an exact date, but it won’t cover other parts of the project at all.
A Fidelity Bond Is A Different Bond As Well
While all of these different bonds can be considered performance bonds in a way, each one will have a different objective that has to be met in order for the bond to be completed. Fidelity bonds are aimed at stopping dishonest or harmful acts of someone that has been put in charge or trust of money or other valuables.
Part of what makes bonding so important is the fact that the insurance company that’s issuing the bond will do an investigation to make sure the Principle they are covering has no prior history of breaking a bond. That stops many contractors from getting licensing bonds or being in the contractor business if they can’t get bonding. In most states, if you can’t get bonded, you won’t get licensed or insured either.
Some bonds are even written to ensure that people pay their utilities on time, this would normally be when a landlord needs assurance that they won’t get stuck with a huge electric bill attached to their property after a tenant vacates.
If you have questions regarding a certain type of bond it’s best if you visit aidsandthelaw.com or contact an insurance agent that specializes in those types of bonds. Even then, it’s a good idea to spend some time reading the actual contract to really understand what you’re buying. It’s quite common for people to think they are covered by a bond without ever having read what type of bond it is and what it does.