What is the difference between a performance bond and a surety bond?
A performance bond is used to ensure that the project will be completed as planned. A surety bond is something quite different, and its primary purpose is to act as insurance for you or your company. It ensures that if the contractor fails to do what he promised to do, you are protected against loss. It means that whoever has guaranteed his performance under this contract must step forward and honor that guarantee. This usually happens at the time when there’s a default on your part of the contract, or by your failure to pay him according to the terms of his contract with you.
The two types of bonds serve two very different purposes: For one thing, a performance bond can only be obtained by contractors who are prequalified by certain licensing agencies. That means a surety bond company will not give you a quote for a performance bond if the person applying for it isn’t licensed. The other major difference between a surety bond and a performance bond is that your agreement with the contractor under his performance bond is usually much more detailed – and quite possibly legally binding – than the simple statement that’s contained in an agreement of indemnity or guarantee under either type of surety bond.
In summary, though all bonds serve to protect the interests of at least one party to a transaction, they do so in different ways: A Performance Bond ensures that the project will be completed by a qualified contractor. A Surety Bond protects you from financial loss should your contractor honor his part of your contract.
What is a surety bond?
A surety bond, in simple terms, is a guarantee that a contractor will perform the work agreed upon in a contract. The bond is an agreement between three parties: the obligee, the principal, and the surety company. The obligee is the party who needs the work done, for example, a municipality or business; the principal is the contractor who agrees to do the work, and the surety company is the guarantor or insurer.
If you’re wondering why anyone would need insurance against a contractor’s failure to do his job, consider this: A contractor may not have enough money to pay for damages if he fails to complete a project. A surety bond guarantees that those costs will be covered.
The key difference between performance bonds and surety bonds is that a performance bond is only available to contractors who have been pre-qualified by a licensing agency, while a surety bond can be obtained by anyone. Performance bonds are also more detailed and legally binding than surety bonds.
What is a performance bond?
A performance bond guarantees that a contractor will complete a project. Under this type of guarantee, the owner or designer is protected from financial loss due to a default by the contractor. The owner may file a claim with the surety company to recover any losses if the contractor fails to complete the job as agreed upon in the contract. This includes labor and materials costs as well as damages for delayed completion.
One of the main differences between performance bonds and surety bonds is that only contractors who have been pre-qualified by certain licensing agencies can apply for a performance bond; anyone can apply for a surety bond. Performance bonds are also more detailed and legally binding than surety bonds – contracts must be submitted to and approved by the licensed agency before work begins.
Is a performance bond a surety?
No, a performance bond is not a surety. A performance bond is a guarantee that a contractor will complete a project, while a surety bond is a guarantee that the contractor will honor his obligations under a contract. Performance bonds are only available to pre-qualified contractors, while surety bonds can be obtained by anyone. Performance bonds are also more detailed and legally binding than surety bonds.
So, what’s the difference?
A surety bond protects you from financial loss if your contractor fails to do what he promised. A performance bond guarantees that the contractor will complete the project as agreed upon in the contract. Performance bonds are only available to pre-qualified contractors, while surety bonds can be obtained by anyone. Performance bonds are also more detailed and legally binding than surety bonds.
What is a license bond?
A license bond guarantees that the contractor will obtain the required licenses and permits, enabling him to do work on your project. The license bond protects you from financial loss if the contractor fails to meet state licensing requirements.
By law, your contractor is required to have certain licenses and permits before beginning work on your project – if he doesn’t possess them and begins work anyway, then you could be held responsible for paying fines or having work stopped by officials until proper permits are obtained. A license bond holds you harmless in this situation.
Why use a surety company instead of an insurance company?
While some general liability policies provide contract performance coverage, many insurance companies won’t provide enough coverage, and the insurance company will attach various conditions and exclusions to your policy. Also, bond claims must usually be made within a year of the date on which they occurred; insurance policies often have different time periods in which claims can be made.
To know more about performance bonds, visit Executive Surety Bonds now!