Frequently Asked Questions about Bonds:

 

1) What Is a Surety Bond?

A written agreement whereby one party, called a Surety, makes promises or guarantees on behalf of another party, called a Principal. In the agreement, the Surety makes these promises or guarantees to a third party called the Obligee.

 

2) What Is a Contract Bond?

Where one party (Principal) has been awarded a construction or supply contract with a condition that a bond from a Surety will be given to guarantee to the Owner (Obligee) the performance of the Principal’s obligations under the contract.

 

3) What Is a Bid Bond?

A bond given to a Federal, State, County, or Municipal Government agency at the time of bid which guarantees the good faith of the Contractor (Principal), i.e. that if the Principal is awarded the contract the Principal will enter into the contract and post the required Performance and Payment Bonds. Bid bonds are typically required only as a percentage of the Principals bid, usually 5-20%.

 

4) What Is a Performance Bond?

The Performance Bond follows the bid bond if the Principal (Contractor) was deemed low bidder and is awarded a contract. The Performance Bond guarantees that the contractor will complete the contract in accordance with the terms, conditions and specifications of the contract. The Performance Bond is required as a condition of being awarded the contract.

 

5) What Is a Payment Bond?

A Payment Bond is usually required as a companion to the Performance Bond. The Payment Bond guarantees that material suppliers and direct labor suppliers will be paid. Though Payment Bonds are typically separate documents they are issued for no extra charge, when required.

 

6) What Is a License or Permit Bond?

A bond which is required as a condition of receiving a License to engage in a certain business or as a condition of receiving a permit to exercise a certain privilege. The bond guarantees that the Principal will perform his or her obligations under the license or permit. These bonds are designed to protect the general public as well as the Government agency issuing the permit or license. License or Permit Bonds are required from businesses as well as individuals.

 

7) What is a Fidelity Bond?

An insurance device in the form of a personal guaranty that protects against loss resulting from disreputable or disloyal employees or other individuals who possess positions of confidence. A bank might, for example, insure itself against losses deliberately or negligently caused by their officers and staff through the execution of a fidelity bond. If such losses occur, the amount of the bond is forfeited to reimburse the losses.