Why Some Of Your Clients Require Surety Bonds

If you are a contractor, you work explicitly for someone else. They expect you to do the necessary jobs with accuracy and commitment. They also expect you to get the job done on time. Any deviation from the contract stipulations, and you might cost your client time, money and opportunity. As a result, they might require you to pay them back. How will you do this?

One of your options is to use a surety bond. This, in fact, might be your only recourse in the event of a contract problem. Your clients will often require surety bonds as a stipulation for you to even bid for a contract. Thus, carrying coverage will often create more protection over your work.

How Bonds Work

Bonds come in various shapes and sizes. You can think of a surety bond as a financial assurance that you have a client's interests under control. It helps your client have the guarantee that you will compensate them in the event you make a mistake. In other words, as a contractor, your actions or inaction could harm the client. Therefore, they will need to reabsorb their losses. That might mean you will have to use the funding provided by your surety bond.

Like liability insurance, surety bonds guarantee your clients that you will compensate them in the event you fail in your duties. In the bond agreement, you are the bond';s principal. The client is the bond's obligee. The company that issues and maintains the bond is a surety company. After a policy claim, the surety company will issue a payout to the obligee.

Yet, unlike liability insurance, the principal will still face a financial obligation. You won't be able to simply file a claim and let the surety company handle the rest. Instead, you will have to repay the surety company — usually the full amount of the payout. The bond functions as a promise that you have the assets to compensate your clients in the event you renege on your work. It doesn't protect your own assets in the same way as insurance.

Let's say that you fail to honor key parts of a construction contract. While the damage might not be wholly your fault, it still might cause a loss to the client. With a bond, the client can recoup their losses. You can also work with the surety company to settle the cost of the losses on your terms.

Thus, the client won't unfairly suffer just because of an accident. It is for this reason that they will likely require a bond in the first place. It will help them feel secure when investing in your services.

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