A Surety bond is a contract among three parties: the obligee – the party who is the recipient of an obligation. The principal- the primary party who will perform the contractual obligation. The surety- who assures the obligee that the principal can perform the task.
There are four types of surety bonds:
- Bid Bond: Ensures the bidder on a contract will enter into the contract and furnish the required payment and performance bonds if awarded the contract.
- Payment Bond: Ensures suppliers and subcontractors are paid for work performed under the contract.
- Performance Bond: Ensures the contract will be completed in accordance with the terms and conditions of the contract.
- Ancillary Bond: Ensures requirements integral to the contract, but not directly performance related, are performed.
When is a surety bond necessary?
Any Federal construction contract valued at $150,000 or more requires a bond when bidding or as a condition of contract award. Private entities, service contracts and supply contracts may also require surety bonds.
Fidelity bonds are a form of insurance protection that covers policyholders for losses that incur as the result of fraudulent acts or misconduct by specific individuals, usually employees.
There are three types of Fidelity Bonds:
- ERISA Bonds: Protection for businesses with a defined benefit plan
- Buisness Service Bonds: Protection for businesses whose employees enter clients homes
- Dishonesty Bonds: Blanket or scheduled coverage to protect businesses against employee misconduct.
When is a Fidelity bond necessary?
Your business may be required by law to have a fidelity bond if you have a defined benefit plan.
Any business with employees, contractors or those with a high turnover rate.