Surety Bond is one of the most important documents signed between a project owner, a contractor taking up his project, and a surety company that covers all expenses in case of a default. Surety bond insurance companies always are particular in their review for the right people to get such coverage. To achieve this, they make a contractor go through a thorough evaluation process, before issuing a surety bond to start work on the project. This surety bond is what gives assurance to the project owner that by dealing with the bound contractor, he will have his project completed as promised, without fearing for any loss in investment.
Surety bond insurance companies know their job well. They can always tell which contractor can get the job done, and which one has a higher possibility of defaulting on a project. To make sure of this, these companies conduct a thorough evaluation of the contractor’s background history, including his financial standing, work history, available equipment, expertise in the industry, and reviews from former clients. Many other aspects can also be covered during the evaluation, depending upon the need for the same.
Surety Company vs Insurance Company
It must be noted here that there is a difference between surety bond insurance companies and surety companies. The former work as a funnel to get the right contractors to the latter, for them to provide a backing to start work on a project. Insurance companies often have third party channels which can get them background details about the contractor. These details are then furnished to the surety company, which then decides whether it should issue a surety bond for the contractor or not. There can be certain riders as well here to make the case stronger for the contractor, however, that is usually not the case.
Why get a surety bond?
Surety bonds are considered necessary by all the project owners nowadays, since these bail bonds give them an assurance that their project will not get affected due to any default from the contractor’s end. In case that happens, the surety company will either get the contractor back on track to get the work done as promised, or will have another contractor work on it instead, without incurring any loss to the project owner. Surety bond insurance companies ensure that there is minimal to no loss at all for a surety company as well in such a scenario, which creates a win-win situation for all.