What is a Surety Bond?
A surety bond is a contract that governs the legal relationship between a principal (contractor), a surety, and an obligee (owner or general contractor), in which the surety guarantees that the principal in the bond will perform the obligated duties that are outlined in the bond. When these duties are fulfilled, the bond is at that point considered void. However, if the duties are not fulfilled the bond will remain in full force and effect.
If the principal does not perform the duties outlined in the bond, the principal or the surety are liable on the bond. This liability is “joint and several” meaning that the principal or the surety, or both can be sued on the bond and held accountable for the entire liability. The amount of an issued bond is known as the “penal sum,” or the “penalty amount” of the bond.
Types of Construction Surety Bonds
A performance bond is a contract that guarantees the obligee that the principal will fulfill the contract according to the agreed upon terms including price and timeline. If the principal fails to fulfill their duties, the obligee may call upon the surety to fulfill the obligation.
A payment bond guarantees the obligee that all subcontractors and suppliers, also known as beneficiaries, that were used to fulfill the obligation of the bond are fully compensated for services and materials provided by the principal. If the beneficiaries are not compensated, both the obligee and the beneficiaries are entitled to sue on the bond. If you are a subcontractor or supplier and have not received payment for services or materials provided, we highly recommend seeking the legal advice of a Tampa construction lawyer.
A bid bond is a guarantee to the obligee that if awarded the contract, the principal will honor the and agree to the contract terms. If the principal does not fulfill the bond, both the principal and the surety can be held accountable for any additional costs associated with reletting the contract. For federal projects, a bid guarantee is required whenever a performance or payment bond is mandatory.
A construction lawyer in Tampa will be aware of the rights and obligations of each party involved for all types of surety bonds and may be able to provide sound advice and technical expertise for your unique situation.
Disclaimer: The information contained in this article is for general educational information only. This information does not constitute legal advice, is not intended to constitute legal advice, nor should it be relied upon as legal advice for your specific factual pattern or situation.