There are two main categories of surety bond:
Contract bonds guarantee a specific contract. Examples include Performance Bonds, Bid Bonds, Supply bonds, Maintenance Bonds and Subdivision Bonds. Commercial Bonds guarantee per the terms of the bond form..
Surety bonds are typically required for contractors who seek to work on government contracts. They are also required for persons and companies that are licensed by a governmental entity. Even when not compulsory, surety bonds make sense when a contract requires performance, because they help compensate obligees when principals fail to meet their contractual obligations. They do not make sense if the amount of possible damages is negligible.
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