A surety bond is a contract among at least three parties:
- The principal - the primary party who will be performing a contractual obligation
- The obligee - the party who is the recipient of the obligation, and
- The surety - who ensures that the principal's obligations will be performed.
Through a surety bond, the surety agrees to uphold — for the benefit of theobligee — the contractual promises (obligations) made by the principal if theprincipal fails to uphold its promises to the obligee. The contract is formed soas to induce the obligee to contract with the principal, i.e., to demonstratethe credibility of the principal and guarantee performance and completion perthe terms of the agreement.
The principal will pay a premium (usually annually) in exchange for thebonding company's financial strength to extend surety credit. In the event of aclaim, the surety will investigate it. If it turns out to be a valid claim, thesurety will pay it and then turn to the principal for reimbursement of theamount paid on the claim and any legal fees incurred.
If the principal defaults and the surety turns out to be insolvent, the purpose of the bond is renderednugatory. Thus, the surety on a bond is usually an insurance companywhose solvency is verified by private audit, governmental regulation, orboth.
A key term in nearly every surety bond is the penal sum. This is aspecified amount of money which is the maximum amount that the surety will berequired to pay in the event of the principal's default. This allows the suretyto assess the risk involved in giving the bond; the premium charged is determined accordingly.
Surety bonds are also used in other situations, for example, to secure theproper performance of fiduciaryduties by persons in positions of private or public trust.
List of Bonds provided
Surety
Notary
Fidelity
ERISA
Small Contractors
Medicare
And many more.....ask about them.