What is a Surety Bond and who needs one?
It is essential to understand that a surety bond involves three distinct parties.
The first party, known as the 'surety', is responsible for underwriting the bond. The second party, known as the 'obligee', is typically an individual or municipality that has entered into an agreement for a construction project and seeks financial protection if the project is not completed according to the specified terms. Finally, the contractor, also called the 'principal,' is the third party involved.
To summarize, a surety bond is a mutually binding agreement between the contractor (or principal), the surety (the bond underwriter), and the obligee (the project owner or municipality).
For those in charge of construction projects or municipalities, a surety bond acts as a safety net against contractors defaulting on their work. If the contractor does not meet the contract terms or complete the project, the bond's underwriter (Surety) will reimburse the owner, who can then seek reimbursement from the contractor.
Unlike standard insurance policies, surety bonds do not anticipate any losses. The surety prequalifies the principal to ensure they can fulfill their contractual obligations, with the bonded principal carrying the economic risk.
At Pan American Agency, we have a wealth of experience in providing surety bonds. We will help you obtain a surety bond for your construction project, ensuring a smooth process from start to finish.