Bond Descriptions
- What is Surety?
- Surety is the act of a person or corporation making themselves liable for
another's debts, defaults or obligations, etc.
- What is a Surety Bond?
- A written agreement indemnifying another guaranteed by the surety company
should there be a failure by the principal bonded to perform specific acts within
a stated period.
- Who are the Parties to a Surety Bond?
- Surety, obligee and obligor (principal). Surety obligates itself to a second
part (obligee) to answer for the default of a third party (principal).
- What is a Contractor's License Bond?
- Before a contractor's license can be issued or renewed (or an inactive license
reactivated), the contractor must file with the Contractors State License Board
(CSLB) a Contractor's License Bond (or a cash deposit). The bond is in the amount
of $10,000.
- What is a Disciplinary Bond?
- If a contractor's license is suspended or revoke due to a violation of the
Contractors License Law, the contractor must file a Disciplinary bond with the
CSLB if the contractor's license is to be reinstated or reissued or if he/she
wants to get a new license. Disciplinary Bond amounts are for at least $15,000,
but can be larger and the bond must be on file with the CSLB for at least two
years, and sometimes longer.
- What does Bondable mean?
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Bondable means that the Contractor's capital, character & capacity have been
analyzed by a Surety Underwriter. The Surety Underwriter has then determined
that the Contractor can perform certain types of work within established parameters.
Based upon that determination, the Surety Company will issue Surety Bonds guaranteeing
the Contractors performance and/or payments within the resolved guidelines.
- What is a Bid Bond?
- A Bid Bond is submitted by the contractor along with his bid for a specific
project. It is usually in an amount of 5% to 20% of his total bid (with 10%
being the most common amount). A Bid Bond provides the owner of the project
with some financial assurance that should this contractor be awarded the construction
project, he will enter into the contract with the owner and also post a Performance
and Payment Bond.
- When is a Bid Bond Required?
- Nearly all Public Sector jobs and many private ones require the posting
of a bid bond or cashiers check at the time the bid is submitted.
- What is a Performance/Payment Bond?
- A Performance Bond is submitted by the contractor to the owner of the project
once he has been awarded the job. A Performance Bond guarantees contract performance
by the contractor, according to the contract specifications, terms and conditions.
The surety company's capital and surplus backs this guarantee up to the financial
limit of the bond (which is often at 50% or 100% of the full contract amount.)
- A Payment Bond is also submitted by the contractor to the owner of the project
once he has been awarded the job. A Payment Bond guarantees that this contractor
will pay certain bills for labor and materials (including those from subcontractors
and suppliers) which are associated with this contract. The surety backs this
guarantee up to the financial limit of the bond (which is often at 50% or 100%
of the contract amount).
- When is a Performance/Payment Bond Required?
- Performance/Payment Bonds (Final Bonds) are usually required on all Public
Sector jobs and many Private ones. Whoever initially requires bid bonds customarily
need to be issued final bonds within 30 days of the award date or prior to any
contract payment.
- What is a Subcontractor Bond?
- A bond required by a general contractor of a subcontractor guaranteeing
that the subcontractor will fully perform the subcontract and pay for labor
and materials.
- What is a Maintenance (Warranty) Bond?
- A Maintenance (Warranty) Bond, while not normally required, can sometimes
be required by the owner of a construction project. It provides coverage for
defective workmanship or faulty materials discovered after the project has been
completed. The bond typically has a financial limit at around 10% of the final
contract amount.
- What is a Supply Bond?
- A Supply Bond is submitted by a contractor/supplier to another party once
he has been awarded a contract to supply a specific product to the other party.
A Supply bond guarantees contract performance by the contractor/supplier, according
to the contract specifications, terms and conditions. The surety backs this
guarantee up to the financial limit of the bond (which is often at 50% or 100%
of the contract amount).
- What is a Subdivision Bond?
- Subdivision Bonds are submitted by a developer/home builder to the local
municipality or county at the time he/she wants to file a lot map or obtain
a building permit. Subdivision Bonds guarantee that specified improvements--such
as streets, sidewalks, curbs, gutters, sewers, water main--will be installed
by the developer/home builder within a certain time period and according to
the governing body's requirements. The surety backs this guarantee up to the
financial limit of the bond.
- What are License & Permit Bonds?
- These are bonds which are required as a prerequisite to obtaining a license
or permit for a particular profession, occupation or activity. They can be required
by the state or some local municipality or regulatory body. To understand a
specific license or permit bond obligation, it is necessary to review the statute,
ordinance or regulation from which the bond originated, along with the language
of the bond form itself. Generally, a License or Permit Bond requires that the
principal comply with the laws, statutes, ordinances and regulations pertaining
to that particular license or permit. This bond is usually written for a one-year
term.
- What are Miscellaneous Bonds?
- Bonds are sometimes written to guarantee some kind of financial or indemnity
obligation, or to guarantee the fidelity of an individual. To understand the
specific bond obligation, it is necessary to review the regulation or contract
from which the bond originated, along with the language of the bond form itself.
- What determines the size of the jobs a Contractor can bond?
- Surety companies use various underwriting guidelines to ascertain what surety
limits are applicable. Financial strength, prior job history, time in business
and type of work are some of the components.
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