Bonds
Bid Bonds
Bid Bonds are required in connection with the submission of tenders for contracts with public authorities and private owners. The object is to guarantee that the Bidder (Contractor), if awarded the Contractor will enter into the Contract and furnish the prescribed Performance Bond.
If the Contractor is afterwards unable to enter into the Contract or to furnish the requested Performance Bond, the Contract is awarded usually to the next lowest responsible Bidder. The Surety Company which has declared itself liable for the Contractor is generally responsible only for the difference between the Bid of its Principal and that of the Contractor who is finally awarded the Contract.
The cost for such coverage is normally 1% of the sum to be insured.
Performance Bonds
Performance Bond is required of a Contractor to guarantee the full and due performance of the Contract according to plans and specifications.
Once the Surety has signed the Bond together with the Principal and delivered it to the obligee the obligation is no longer that of the Principal alone, if the Principal fails, the obligee may seek recovery from both the Principal and the Surety.
The Surety will be responsible up to the amount set forth in the Bond, but, in general, for no more than the amount of the obligee's actual loss.
Most Bonds also entitle the Surety to fulfill the Contract in the event of failure on the part of the Principal.
