A surety bond is nothing but an agreement between three people and that includes the obligee, the surety, and the principal. The surety is generally the party who is responsible for the contract, debt, or obligation. Surety bond Georgia or any surety bonds are especially or rather typically used to safeguard against contracts from future risk and insecurities. The sole purpose of the surety is to answer when the principal defaults in their actions and deviated from the terms and conditions, as mentioned in the bond agreement.
Characteristics of a Surety Bond:
The obligee is a party, or we can also state the owner who expects the surety bond or surety bond Georgia to be a form of protection; they can utilize the bond to conceal any damages made during a claim. These obligees can be government agencies or companies or can also be individuals.
The principal is a party who takes out the surety bond. The surety bond generally safeguards the obligee from unethical business practices or violation of contract terms and conditions.
The principal also posts collaterals with the surety that can be typical up to 100% of the amount of the bond.
The surety and the principal agree to pay the obligee a specific amount for any damage caused because of the principal’s default.
The principal is expected to sign a security agreement to support the surety bond.
Before the declaration of anything, there should be a meeting conducted by the three parties, the surety, the principal and the obligee, to discuss any existing problems.
Surety Bond penalty:
In case of any loss or damage caused, the penalty is generally the maximum amount that the obligee must pay.
The liability limit is also placed on the surety bond.
Termination of the Bond:
Some of the surety bonds can be in effect for an undetermined time.
Surety bond generally expired on the debt is paid off in total, or we can also say that the debt is completed.
There are non-cancelable surety bonds, and these bonds only expire when the agreement is met.
Benefits of Surety Bond:
The surety bond Georgia or any surety bond assures that the work will be completed based on the signed contract. Additionally, if the tender option is selected as default, then it shifts the risk of completion of the project to the surety for the contractor to complete the project.
Surety bonds generally support industry standards by offering clients a trustworthy way in which they can demand against companies that provide low-quality services and goods.
Surety professionals have a lot of expertise in addressing troubled projects, and thus the expertise of the surety professional can help and prevent a default termination.
The takeover option is also very beneficial to the surety as the cost of completion of the project is solely controlled by the surety company by default in this case.
Disadvantages of Surety Bond:
The risk of the surety is generally unknown when a takeover option is selected during default selection.
The cost of completion of the contracted project might increase when the tender option is selected.
Thus to conclude surety bonds definitely support to the increase in contracting opportunities, and these bonds are frequently used in the construction industry. The surety company generally utilized this surety bond as a guarantee against any unforeseen financial challenges that might arise with the principal. During a default case the surety company always has the option to takeover, advice the obligee or tenders a new contract. Although through this surety bond the obligee and the surety companies are benefited in the long run, however additional risks might be incurred when the principal firms are unwilling to provide security.