If your business deals in contracts, then clients expect you to do your work correctly. If you fail to do so, then you might have to pay for the client’s losses. Sometimes, your commercial liability insurance can help you do so. However, in other cases, you will have to compensate the clients according to the terms of surety bonds. Why do you need these bonds?
What are surety bonds?
Surety bonds relate to the relationships between contractors and their clients.
Like liability insurance, surety bonds promise your clients a financial settlement in case your mistakes cause them harm. However, the bond simply promises that you will pay the client in case your actions cause problems in the project. It is a promise that you will take responsibility if you cannot meet your contractual obligations.
An insurance policy pays a client on your behalf. A surety bond, however, guarantees them only that you will make remittance to them. It essentially guarantees that you have the money and assets to pay for losses a client didn’t count on when contracting with you.
When do you need them?
When you enter a contract with your clients, you likely will promise to meet timelines, costs and other requirements. If you fail to do so, you might wind up costing them money. A surety bond will guarantee the client that you can compensate them for the losses. Therefore, you will likely need bonds if you wish to bid for any contract.
Let’s say that one of your contractual projects runs over time. Your affected client can make a claim on the bond. The surety company that manages the bond will then settle the cost with the client, or you will pay the client yourself. If the surety company pays for you, then you will make repayments to the surety company. The costs of the claim, ultimately, are yours to bear.
Are they required?
Sometimes, bonds are mandatory for certain contracts.
· The federal government and states usually require bidders to present proof of surety bonds. If you do not do so, then you cannot bid.
· Companies licensed by a government entity must also usually require coverage.
· Private clients might also demand that contract bidders carry surety bonds.
Therefore, even if you don’t necessarily have to have surety bonds, you can still benefit from them. They can make your business much more competitive when it comes to securing contracts. They might also cut down on your company’s risks of lawsuits or other challenges, therefore improving your corporate reputation. Don’t hesitate to ask your agent if you need bond coverage today.