Although the general public doesn’t really get what a surety bond is most of the time, they do hear the phrase “licensed, bonded, and insured” quite a lot. For them, it’s only important that the bond is there to protect them, from what, they really aren’t all that sure. They’ve heard that it’s needed for all types of contractors and that a contractor that doesn’t have one is most likely some kind of con-man or criminal. That’s not always the case, but it can be difficult to get bonded in certain situations and con men do have a hard time getting bonded. Let’s take a look at some of the many reasons that people and companies need surety bonds.
The Basic Surety Bond Is Like a Guarantee That A Duty Will Be Performed
To start with, there has to be some kind of obligation. Sometimes it’s to perform a task, other times to fulfill a promise, and still other times it’s a requirement to not do something illegal. Then, it’s almost like an insurance policy where a company agrees to pay money if the bonded person doesn’t perform as required by the contract. Then, if a contractor, agent, or other bonded person fails to perform they will be almost impossible to bond again in the future.
The reasons bonds are required are also many, but they almost always hinge on a loss of money when the bonded person doesn’t perform as contracted. It may only be a bond on a bid where the company or government entity has offered a large contract to construct a bridge or something. They require the bidders to be bonded so that if one of them bids on the job and fails to perform there is some kind of monetary compensation to reimburse them for their time and effort of putting out the bid. There is also the loss of time that the construction project will sit without being finished.
What the bonding does in effect, is to weed out lesser bidders that can’t get the bond and helps to ensure that only qualified bidders are actually bidding on the contract. As most people know, without weeding out the unqualified bidders in some kind of auction process there is the possibility of “straw man” bidders changing the final outcome even though they don’t have the ability to perform on the contract at all.
When A Homeowner Needs A Bonded Contractor This Is What That Means
Before the government stepped in many decades ago it was quite common for a contractor to take a down payment on a job to buy materials and then just walk off and never be seen again. Or, maybe take a down payment from the neighbors down the road and walk off from that job too. Since there was no way to know if a particular contractor was going to finish any job it created a lot of uncertainty in the marketplace. Homeowners wouldn’t hire anyone to do the work even though there were qualified contractors and those contractors were being soiled by unscrupulous con men.
Now, with all of them needing to be licensed, bonded, and insured it has helped weed out the thieves and the marketplace works smoothly as it should. So when you look for a plumber, roofer, or painter to do work for you, you should always make sure they have a surety bond that helps guarantee that they finish what they start.