WEDNESDAY, FEBRUARY 26, 2020
 A surety bond is an obligation that guarantees a certain contract will be fulfilled as promised. You may be asked to purchase a surety bond if you’re performing a government job or construction work. Before purchasing a surety bond, it’s important to understand the structure of the agreement and what boundaries you must operate within. Most surety bonds only last as long as the contracted work lasts. The time limits can vary depending on the type of bond, as well.
There are four main types of surety bonds:
- Commercial: A commercial surety bond is typically required by government agencies for certain new businesses.
- Contract: A contract surety bond is an agreement between the contractor, the project owner and the surety that the contractor will complete the project within the construction contract.
- Fidelity: Fidelity surety bonds concerns customer loss of money, equipment or personal items. It can also be used in cases of employee fraud.
- Court: Court surety bonds are typically required by an attorney to protect lawyer fees and more.
In general, commercial bonds last between 1-3 years. Some of these bonds can be renewed if required. If you do renew or reapply for a bond, be aware that you may be subject to another underwriting by the surety to check for any changes since the last bond’s expiration. Other bonds, called continuous bonds, last until they are cancelled.
Can a Surety Bond be Cancelled?
A surety bond generally can’t be cancelled except by the surety or with a letter of relief from the obligee. Certain bonds can only be canceled by a court order. Before entering a bond, either as an obligee or a contractor, make sure to understand that you may not be able to cancel the bond unless the contract is completed.
How Much Does a Surety Bond Cost?
How much you pay for a surety bond depends on your position in the bond and the type of bond being purchased. Construction bonds, for example, cost more than lower risk surety bonds. If you are entering the bond as the principal, you may pay between 1% and 15% of the bond’s total value. For example, if you are required to have a $5,000 surety bond and are quoted for owing 1%, you will pay $50 for the bond. Unlike other insurances, this is a one time payment instead of a monthly premium.
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