In general, all surety bonds involve three parties. The surety (in this case, typically the insurance provider), the contractor (you), and the owner (the business or individual that you will be doing work for). Most surety bonds focus on having the surety guarantee the owner that if you fail to deliver on your contract, that the surety will reimburse the owner for any financial issues this creates. Surety bonds can also include guarantees that the contractor will be legally obligated to amend any issues that are their fault that eventuates from their work after the fact.
While not an actual legally enforceable bond, pre-qualification letters can help you secure jobs. Your surety provides the letter to a prospective employer (owner), assuring them that they vouch for your business and work.
Bid bonds are designed to protect the owner, assuring them that if you were to secure a contract with them you’d be obligated to finish the work or payout. However, this does help increase your likelihood of securing jobs.
If applicable, this insurance policy protects you by ensuring the contractor will resolve any defects that may arise (for example, to your vehicles) free of charge and, if they don’t, you will be compensated for those defects.
As noted above, the key purpose of a contractor’s surety bond is that the owner who contracted you is assured that if you happen to not finish your contracted job, they will be financially reimbursed.
Commercial surety bonds are used as a guarantee for fiduciary obligations, governmental legislation, and private contractual obligations of the applicant. Bonds can be sold to companies or individuals to satisfy government regulations or court orders as well as to replace lost share certificates.
These types of bonds are typically part of licensing processes and are requirements for companies and specific individuals to protect consumers against fraud or misrepresentation.