Surety

People are often confused about surety and a little hesitant to ask for an explanation. Surety is a bit different from other forms of insurance.

Basically a surety bond is an agreement among three parties. Usually the three parties are the surety company (an insurance company), the contractor (also known as the principal) and the project owner (known as the obligee).

The project owner is not necessarily an individual. It may be a private business or a public entity such as a government or a crown corporation.

The surety provider (insurance company) assures the project owner that the contractor will perform a contract by completing certain work to a declared standard. There can also be conditions assuring that the contract will follow special regulations or even pay certain costs such as wages, subcontractors and the suppliers connected to that particular project.

If the contractor fails to perform the work as has been specified, now the surety company is responsible to see that the project is completed.

If you are looking to get surety coverage then the insurance company is going to look at you in regards to both your financial and prior experience in the construction industry. They will look at your capacity to take on the job, credit history and overall financial strength, character and reputation as well as quite a few other factors when deciding to give the bond.

When there is a large project you will often see bid bonds. The requirements are complex, including financial statements, proof of life insurance and a history of similar work performed before a bond will be granted.

This type of bond is best started well ahead of the project so that it can be in place when the bids are processed.