Surety Bond Company: A Security to do Business

Surety Bond Company is the company which provides the surety to the project manager (called oblige) on the behalf of the contractor (called principal). If the project manager has given a project to the contractor, then he obtains a surety bond from a surety bond company. In case, the contractor fails to complete the contract in future or the principal is unable to compensate with the financial loss  then the surety bond provider company is liable to complete that project with the help of other contractor or to compensate the project manager with the financial loss incurred by the oblige respectively.

Working process of Surety Companies –

These Companies provide surety bonds after considering the ability & work history of the contractor. Basically, a surety bond company looks for a well-run business & provides the surety bond on the basis of the following parameters of the business (principal) – a management team of veteran professionals with a proven track record of success, an adequate accounting system with appropriate financial details & reporting capacities & a positive history of stable, customer-centric & lucrative business.

On the basis of above parameters, the Surety companies considers the principal& provides the surety bond to the company which provides the surety of the business to oblige with principal. The principal buys a surety from the surety company and pays a premium. On the other hand, the surety extends the principal surety credit, telling that the bonded project is guaranteed to work out, providing the surety of the work.

Male construction worker at a building site smiling

The company after analyzing the track record of the contractors, expects the contractor to perform the contractual obligation as mentioned in the bond. A surety will not issue the bond, until or unless the surety has full trust upon the contractor regarding contractor’s performance & completion of the project. Once this determination is established, then the surety requires security for its bonds. This security is an agreement by individuals or indemnitors. The surety evaluates these individuals or indemnitors, their net worth & working capacity to figure out their financial ability to stand for any loss that the contractor causes.

However the surety companies have the sole & exclusive right to decide whether any claims against the bond should be paid, settled or defended. The principal & indemnitors agree upon it that surety’s decisions on such matters shall be final & binding on them in any condition.

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