About Surety Bonds
Construction is a risky business; for the owner, the contractor, the subcontractor and the supplier. Construction buyers demand the most comprehensive protection from the risk of default. Contractors must provide assurance to owners that their obligations will be fully met. That assurance and protection is available with a Surety Bond. A Surety Bond satisfies both parties by guaranteeing timely project completion and the payment of bills at the most reasonable cost.
Construction contracts were personally guaranteed until the early 1900s when the federal government began to require Performance and Payment Bonds on their contracts. Today, the Surety Bond is the standard instrument of protection for public and private construction buyers. A Surety Bond is too often considered a form of insurance when in reality it is a unique form of credit that guarantees pre-qualification, performance and credit-worthiness of a contractor – all at a cost much less than the prime and higher rates imposed by lending institutions. The Surety Bond is a legal agreement in which the Surety obligates itself to the construction buyer for the default of the contractor.
Why and how are surety bonds used?
Bonds are used in a variety of applications to guarantee delivery of services or product to the Obligee (the Owner or Buyer). Following thorough pre-qualification and risk analysis, the bond producer or agent recommends issuance of the Bond by the Surety (the Bond guarantee to the Obligee that the Principal promising the service or product will deliver under the terms of the contract).
The Surety Bond has become the most respected and economically competitive instrument of guarantee throughout the world. Letters of Credit and value-equivalent loans from lending institutions cost far more than a Surety Bond. The full prestige of the Surety Bond may be due more to the recognition by Obligees of the invaluable partnership that exists between the Agent, the Surety and the Contractor.
The form of Bond used is determined by the type of transaction or contract.
Performance bonds guarantee the timely fulfillment of obligations of a written contract.
Payment bonds guarantee to the Owner the contractor will pay for labor and materials obligated in the fulfillment of the contract. The Payment Bond is also frequently called a Labor and Equipment Bond. A Payment Bond is nearly always provided with a Performance Bond.
Supply bonds guarantee the faithful performance or delivery of supplies or materials to the buyer.
How to obtain a bond
Skillings Shaw and Associates is a Bonding Agency that represents your interests in the negotiation and acquisition of Bonds from the Surety. The construction process is fraught with a variety of risks, so the Surety Bond guarantee is one of the riskiest of all credit instruments available. As a result, it is imperative that a trusted relationship be established and maintained between the Contractor, the Bond Agent and the Surety.
An experienced Surety Agent possesses knowledge of, and maintains professional relations with multiple Sureties. Skillings Shaw and Associates is familiar with the preferences and requirements of all Surety Providers. This enables us to match the right Surety to the right Contractor and to achieve the most timely, economic, and beneficial relationship. In order to obtain your first Surety Bond you must first establish your credit-worthiness by providing Skillings Shaw with the information listed below. Once the trusting relationship between the Contractor, Agent and Surety is established, the process of obtaining subsequent Bonds becomes a simplified matter of periodic review and renewal.
Key requirements to obtaining a surety bond
Communications with your Agent must be open and honest on all matters. Your Agent objectively evaluates risks and provides critical advice based on broad market familiarity. We are your most objective critic and most ardent supporter and member of your team.
A history of your company, with your work history, organizational chart, and key-employee resumes should be prepared for the best possible representation.
A Corporate or Strategic Plan detailing market objectives and targeted company growth. This plan should also include a Continuity Plan to assure the Surety of continuing successful management control of current and future operations.
Financial Statements using standard accounting methods and prepared by a certified public accountant, or acceptable alternative.
Bank Relationships and Credit References supported by testimonial letters.