What is the Role of Government For Surety Bonds

Who requires businesses to have bonds?

90% of businesses that need surety bonds are to satisfy a government regulation. In many cases bonds are needed to obtain a license or to perform a service for the government.

Why are bonds needed?

Bonds can be required for a variety of reasons. If the principal is performing services for the government the bond protects the tax payer’s investment. This extra step also helps the consumer by eliminating fly by night companies and provides an easier means of financial recourse.

Not all bonds just protect the obligee there are bonds that can protect the bonded business too. Fidelity bonds protect the employer from left by the employee.

What is the difference between surety bonds and insurance?

Insurance policies protect the business that is insured from slip and falls to fires. Insurance policies have a deductible bonds do not. With Surety bonds you cannot pick and choose the coverage you want with insurance you can.

Bonds are more of a reverse insurance policy. Surety bonds protect the obligee, not the business. The obligee can be the state, federal government or it can be a private obligee such as a bank or another business. If a bond claim arises the damaged party evolved can obtain financial compensation up to the stated bond amount unless specified in the bond form.

Without Surety bonds required by the government fraud would be more prevalent and the consumer would be out millions of more dollars every year.

Stimulus funds and surety bonds

The government has set aside a vast amount of stimulus funds for infrastructure projects. In order to be awarded stimulus funds a contractor must first bid on the project if there are the lowest bidder the contractor will be awarded the project.

Before the construction company can start the project the contractor will have to carrier a performance bond. A performance bond is different than a simple license and permit bond. These bonds are required to protect the tax payer’s money that is funding the project. Without the performance bond if the contractor defaulted on the project the tax payer would lose their investment.

Surety Bond information is hard to come by I hope this has help you with the Surety Bond Process. You can learn more about Surety Bonds with future articles


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