Exporting Your Goods
Surety Bonds
You may be required (by law) to obtain bonding in order to bid on capital projects or before you can start work. The following five questions and answers can help you make decisions about obtaining bonds:
What are the most common types of bonds?
What are bid or contract bonds?
Why should we consider applying for a bid bond?
What are performance bonds?
What are fidelity bonds?
What are the most common types of bonds?
- Bid bonds (contract bonds)
- Performance bonds
- Fidelity bonds
What are bid or contract bonds?
Most often used in the construction industry, bid bonds ensure customers that, if you are the lowest bidder on their job, you can and will enter into a contract at the tendered price. If you fail to fulfill your obligations under the bid bond, you must compensate the owner for the difference between his/her bid and that of the next lowest bidder.
Why should we consider applying for a bid bond?
- To assure the customer that you are acting in good faith.
- To guarantee the customer that you have the financial and technical knowledge to complete the work.
- To reduce the demand on your assets and bank credit.
What are performance bonds?
Performance bonds guarantee the performance of your contracted work. If the customer is not satisfied with your work or feels that you did not perform the level of work that was specified in the contract, the customer can look to the issuer of the bond for compensation.
What are fidelity bonds?
Fidelity bonds provide you with financial coverage for losses caused by a dishonest employee. Under fidelity bonding, you are covered up to the amount of the bond. The surety company will then seek reimbursement from your employee.