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Surety bonds: Historical Perspective and importance

Surety bonds have been a priceless tool for centuries. The first known record of contract surety-ship was an engraved clay tablet from the Mesopotamian region around 2750 BC. According to the contract, a farmer drafted into the service of the king was incapable of tending his fields.

The farmer contracted with another farmer to tend them under the condition they split the proceeds evenly. A local merchant served as the surety and bonded the second farmer’s compliance.

Surety bonds online provide financial security and construction assurance by assuring project owners. That contractors will perform the work and pay specified subcontractors, laborers, and material suppliers. A surety bond is a risk transfer mechanism where the surety company assures.

The project owner that the contractor will perform a contract in accordance with the contract documents.

There are three basic types of contract surety bonds online:

  1. The bid bond assures that the bid has been put forwarded good faith and that the contractor will enter. Into the contract at the price bid and provide the needed performance and payment bonds.
  2. The performance bond assists the owner from financial loss should the contractor fail to carry out the contract in accordance with its terms and conditions.
  3. The payment bond ascertains that the contractor will pay specified subcontractors, laborers, and material suppliers on the task.

Although surety bonds online are mandated by law on public works projects, the use of surety bonds. On privately owned construction projects is at the owner’s discernment.

Alternative forms of financial security, because documents of credit and self-insurance, do not render the 100% performance protection and 100% payment protection of surety bonds nor do they assure a competent contractor.

Company and Stockholders

With surety bonds online, the risks of project completion shifted from the owner to the surety institution. For that reason, many private owners necessitate surety bonds from their contractors to protect their company and stockholders from the enormous cost of contractor failure. To bond a project, the owner specifies the fastening requirements in the contract documents.

Obtaining bonds and delivering them to the owner is the responsibility of the contractor, who will consult with a surety bond producer. Subcontractors may also required to obtain surety bonds to help the prime contractor manage risk. Particularly when the subcontractor is a significant part of the job or a specialized contractor that is difficult to replace.

Most surety organizations subsidiaries or divisions of insurance companies and both surety bonds conventional insurance policies risk transfer mechanisms ordered by state insurance departments. Nevertheless, traditional insurance designed to compensate insured against unforeseen adverse cases.

The policy premium actuarial ascertained based on aggregate premiums earned versus expected losses. Surety companies run on a different business model.

Surety designed to prevent loss. The surety pre qualifies the contractor based on fiscal strength and building expertise. The bond is backhand with little expectation of loss.

Any contractor or subcontractor whether in business for one year or 1000, large or tiny, experienced or novice can undergo serious problems. Through the years surety bonds have held fast as an encompassing and reliable instrument for minimizing the risks in construction.

Surety bonds are a legal contract between a principal and surety. The bond obligates the surety to make good on their promise should the contractor fail to complete their obligations as laid out in their contracts. Surety bonds are only available for contractors who have the financial stability to back them up.


A surety bond protects the public and helps ensure that work completed in a satisfactory and timely manner. The importance this financial instrument in the construction industry cannot understated, as it has proven itself effective time.

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