The Value of Securing New York Surety Bonds
The city of New York is currently undergoing a restoration. The work of these proud men and women will surely affect many businesses in a positive way. New York Surety Bonds, as every reputable agency knows, are an indispensable component of each and every construction job. Contractors must obtain the necessary performance and payment bonds before they will be allowed to begin a job.
Without a surety bond in place, an obligee runs the risk of not receiving adequate compensation in case the contractor (aka the principal) defaults, or fails to perform according to the contract. There are times when the involved parties don’t completely understand the way the surety claims process works. There are many things that both parties can do to prevent these claims from occurring in the first place.
Understanding how surety bonds for contractors work
The two main types of surety bonds that are relevant for contractors are performance bonds and payment bonds. These types of bonds function as agreements between three parties: the surety, the obligee (the government or the “client”) and the principal. The bond is in place to guarantee that, if the principal should in any way harm the obligee and his interests, the obligee will receive fair compensation from the surety. This will occur after filing a claim and mutually agreeing with the surety on the scope of the claim.
The different functions of performance and payment bonds
Performance bonds are bonds wherein the parties involved are a surety, a contractor and the obligee who has hired the contractor to perform construction work. These bonds concern a contractor’s performance and guarantee obligees’ interests in case that the contractor should default. Performance bond claims can also be filed against subcontractors that fail to fulfill their commitment to a project as well.
Payment bonds concern the interests of subcontractors, material suppliers and laborers working on a construction project. This particular bond guarantees that those parties (the obligees) will receive their payment, as per bonded contract, and also if the contractor should fail to pay them in full for their services or does not pay them in a timely manner.
When a surety issues a bond to a contractor, this is in some way a guarantee that the contractor is reliable, since sureties perform extensive checks to insure the integrity of the contractor before they issue New York Surety Bonds. Remind your clients that these bonds in themselves are no guarantee that unfavorable issues will not arise between principals and obligees.