The Laymen’s Guide to Surety:
What is Surety Bonding?
Have you heard the expression; “My word is my bond?”
Often in business, your word just isn’t enough.
This is where a surety or guarantor comes in – a financially undoubted institution can guarantee that you will fulfill a contract, as agreed, by issuing a bond.
The surety has no desire to pay out on a defaulted agreement and will do its utmost to bring about a resolution. If the dispute cannot be resolved, the surety may be forced to step in to fulfill the contract, after which, they will seek compensatory damages.
#1) Take for example, a private school that collects a year’s tuition up front: What would happen if the treasurer of the school was to abscond with those funds before classes start? As a provincially licensed institution, the bond would respond and make the parents whole for the lost tuition. The surety would, in turn, attempt to recover these funds from the absconding party.
Many provincial and federally licensed and regulated businesses require bonds.
#2) Take a city who is tendering a contract to build a new bridge;
The municipality must ensure that contractors quoting the job have the wherewithal to complete the bridge in first place. A bid bond provides this assurance as a successful credit check is required for the surety to issue a bond.
When a contractor’s bid is accepted, a performance bond guarantees that the job will be completed on time and on budget. If not, the surety will lend it expertise to see the job through, or be forced to take over the project and seek damages from the contractor.
Many government tendered construction contracts require bonds.
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