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Overview
A broker surety bond is an agreement between three people. The first person agrees to pay a second person a specified amount of money. The third person vouches for the first person, and agrees to pay the bond if the first person is unable to pay. This way parties who are unacquainted with each other have a better chance of conducting successful business. There are two main types of surety bonds used today.
History
The surety bond originated hundreds of years ago. The exact time of creation is unknown, however, it is clear that the practice was well-used by the 1100s. The original uses for the surety bond were used for foreign trade. This enabled members of other countries to have a better chance of trusting each other. Before there were a lot of legal systems in place, a person's word was the most important contract. That is how the phrase, "His word is his bond," came into being.
Function
The purpose of a broker surety bond is to enable two parties that otherwise could not conduct business together to have a successful business relationship. There are two main types of broker security bonds. The contract surety bond provides security during construction projects. The commercial surety bond is generally used to guarantee the performance of certain professional laborers. This is done so that people do not have to worry about being paid or getting the work finished and are assured of the professionalism of the people working for them.
Identification
Contract and commercial surety bonds are the most common today. Contract surety bonds can include: bid bonds, where people are assured that bids offered are real; performance bonds, where people don't have to worry about the construction happening in the way they planned; subdivision bonds, where contractors agree to outfit certain places with nicer features; and other similar bonds. Commercial surety bonds focus more on licenses and legal aspects of the construction business.
Benefits
There are many benefits to having broker surety bonds in place. Construction is able to proceed much faster because everyone is not worrying about whether they will get paid, or if the jobs will be completed. Everyone knows that they will be paid for the work that they have done. The principle parties are assured of receiving high-quality work from the people they employ. Without the surety bonds in place it would be much harder to get projects finished.
Warning
Not all aspects of broker surety bonds are positive. There are drawbacks, as well. The main drawbacks are to the person who has agreed to pay if the work is done in a sloppy manner or if the person quits altogether. When a person takes on the responsibilities of another, there is always the possibility that the other person will default and the first person will have to pay. If the first person was not able to really cover the expenses of the other person, then the first person will be in trouble.
