Below you will read a phone conversation that will answer your question regarding bonds!
Jeanne Grisetti: Hi I’m Jeanne Grisetti.
Ron Philleo: Hi and I’m Ron Philleo. And we’re with Philleo Agency Insurance. Today we’re going to talk a little bit about bonds.
Jeanne: Ron we get a lot of calls about Bonds. What is a Bond?
Ron: That’s a good question Jeanne. A bond is basically a promise that you’re going to fulfill a contract that you’ve entered into. And there’s a third party that insures your promise basically. And they’re going to say, yes, you can fulfill this contract, and we’ll get your background and your ability to perform the work. We’re confident that you can do it on time and in budget and that you’re going to pay subs and all the material costs. And if you fail to do that we will step in and whoever is requiring this work to be done, we’ll make sure that they’re made whole if you fail to fulfill your promise under the contract.
Jeanne: So it sounds a little bit like insurance, so how … is it like insurance?
Ron: Well, insurance pays for, let’s say a mishap or an accident and we pay for that directly and we make you whole again if you have insurance. This is a little bit different. If I’m the person taking out the Bond I’m assuring a third party that they’re going to be made whole If I don’t do my job. I have a little more control over a Bonding situation whether a Bond is used or not because I’m the one that decides if I’m going to be able to fulfill my obligation or not. Insurance is more for an accident like a fire or collision or something along those lines where I need to be made whole again. This is a little bit different.
Jeanne: So if I’m understanding you right a contractor goes into a contract and they would then get a Bond to assure the company that they have the contract with that they are capable of and have the resources necessary to perform the work. And if something should go wrong that the company would be able to recover their costs.
Ron: Exactly. That’s were the Bonding company would step in and say, “Contractor A couldn’t do his work we’re going to make you whole so you don’t have a problem. We’ll step in and find someone who can do the job. We’ll pay the additional costs and everything.” However, keep in mind that they (the bonding company) will go back after the original contractor who they bonded to recover their losses and that’s how it’s different than insurance.
Jeanne: Yeah. It’s very different from insurance because insurance pays the claim. You’re saying that with a Bond if there’s a payment on that bond that the actual the contractor will then have to, they’ll go after… the bonding company will have to go after the contractor is that right?
Ron: That is correct and that’s a big difference, We’ll talk more about that in future videos. Today’s video is meant to give a basic understanding about bonds. Watch for our other videos on how to obtain a bond and additional information.
Other useful posts
- Guide to finding the perfect bonding company
- The Importance Of Your Surety Bond Claims Advocate
- Breaking down performance and payment bonds
- A comprehensive guide on how to Become bonded contractor
- Other types of bonds
- Performance bond insurance: Welcome to the big leagues
- What do construction bonds cover?
- Surety bond claims – How do surety claims work?
- What does it mean to be bonded?
- Qualifying for a surety bond as a contractor
- Why are construction bonds required?
- How to apply for a construction bond – A complete contractor’s guide
- How much do construction bonds cost?