These are the “tickets to the dance”. No ticket – you can’t get into the dance. Must be submitted with the bid as evidence of good faith of your intent to enter into a contract for the project, if awarded. It is largely a prequalification tool that indicates your company is qualified to perform what is required under the contract. At the same time it provides the project owner with a means of recovering additional costs incurred should you decline to enter into the contract.
Build the project to specification, within the time allowed and for the price bid and all is well. If not, this Bond compensates the project owner for direct economic damages incurred by the contractor’s default.
Labor & Material Payment Bond
The name says it all! This bond, typically written in tandem with the performance bond, guarantees that labor, materials and equipment utilized in the project will be paid from the contract proceeds. While it differs slightly from jurisdiction to jurisdiction, the guarantee usually extends down two levels; i.e direct subcontractors of the bonded company, and their direct subcontractors/suppliers/labor force.
The financial backing of a transaction using the balance sheet of an insurance company is rare, and subject to stringent rules and oversight by the various state departments of insurance. There are very few surety companies willing to consider such bonds, but if they do it must be in a special purpose entity where the risk is isolated.
License & Permit
This is an extremely broad category that runs the gamut from quite benign to extremely risky. The permit obligation may be as simple as ensuring scaffolding is properly erected so as to protect the public, or comply with the statutory requirements of being a notary public. On the other hand, you can also find bonds in this category that guarantee the payment of taxes, or union benefits. Clearly a heightened level of risk.
Court & Probate
Probate bonds emanate from matters involving the liquidation of a deceased person’s estate, or the long term care of an “incompetent person” whether they be mentally or physically impaired, or a very young person. Court bonds result from litigation proceedings and are usually imposed by the Court to guarantee the payment of expenses, damages and/or judgments.