What Is a Bond Form?

Surety bonds, primarily used by the construction industry, are a guarantee to one party (the obligee) that a second party (the principal) will perform work to the agreed-upon specifications or in the contract's time frame. Surety bonds are frequently used by government entities. The scope of the contract that is guaranteed by the surety is specified in the bond form.

Types of Bonds

Nearly two thirds of all surety bonds are issued in the construction industry, according to Surety Bonds.com. Two primary categories of surety bonds exist: contract surety bonds and commercial surety bonds. Contract surety bonds apply to a specific contract. Commercial bonds are not limited to a specific contract. The guarantees pledged in a commercial bond are outlined in the bond form.

Acceptable Bond Form Language

Each state has its own surety bond form language that is required to make the bond enforceable. If you require a surety bond, they can be purchased through a licensed bond company in your state. Bond companies are required to be licensed to do business through your state's insurance department.

When the Surety Pays

If the principal fails to fulfill the terms set forth in the bond form, the obligee files a claim against the surety bond. The surety bond company usually conducts its own investigation before paying the claim. If the surety company is required to pay the claim, it will then go back to the principal for reimbursement of the paid claim plus legal fees.

Finding a Reputable Bond Company

Before engaging a surety bond company, the Surety Information Office recommends that you contact your state insurance department. The U.S. Department of the Treasury publishes a list of surety companies that are qualified to write surety bonds on federal contracts. Surety bond companies are rated by companies such as A.M. Best and Dun and Bradstreet for financial stability.


Photo Credits

  • PhotoObjects.net/PhotoObjects.net/Getty Images

About the Author
