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A written agreement whereby one party, called a Surety, makes promises or guarantees on behalf of another party, called a Principal. In the agreement, the Surety makes these promises or guarantees to a third party called the Obligee.
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A bond given to a Federal, State, County or Municipal Government agency at the time of a bid which guarantees the good faith of the Contractor (Principal), i.e. that if the Principal is awarded the contract the Principal will enter into the contract and post the required Performance and Payment Bonds. Bid bonds are typically required only as a percentage of the Principals bid, usually 10%.
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The Performance Bond follows the bid bond if the Principal (Contractor) was deemed low bidder and is awarded a contract. The Performance Bond guarantees that the contractor will complete the contract in accordance with the terms, conditions and specifications of the contract. The Performance Bond is required as a condition of being awarded the contract.
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A Payment Bond is usually required as a companion to the Performance Bond. The Payment Bond guarantees that material suppliers and direct labor suppliers will be paid. Though Payment bonds are typically separate documents they are issued for no extra charge, when required.
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Bonds generally required by businesses, other then contractors, to guarantee completion of service or supply contracts or as required by various licenses or permits.
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The Miller Act, enacted by Congress in 1935, requires that any contractor performing a Federal Construction contract post a Payment Bond along with their Performance Bond. This ensures that all Federal buildings and properties remain free of liens filed by unpaid suppliers of materials and direct labor.
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A bond which is required as a condition of receiving a License to engage in a certain business or as a condition of receiving a permit to exercise a certain privilege. The bond guarantees that the Principal will perform his or her obligations under the license or permit. These bonds are designed to protect the general public as well as the Government agency issuing the permit or license. License or Permit bonds are required from businesses as well as individuals.
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The Surety industry evaluates three basic factors, know as the three "C's". They are:
Character - Does the Principal's record suggest good character, that he or she will be faithful to their obligations?
Capacity - Does the Principal have the skill, experience and knowledge necessary to perform his or her obligations?
Capital - Does the Principal have the financial wherewithal to support or finance the completion of the project?
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For a complete list of underwriting requirements for all types of accounts click here to visit the "How we Evaluate Contractors" page. Remember at The Bond Agency.com we love first time accounts. Click here if you are ready to apply.