Surety bonds are an insurance policy that guarantees that an individual or business will fulfill their obligations to a client. The party who purchases the bond is known as the principal, while the party who is protected by the bond is called the obligee. If the principal fails to provide the services that they were obligated to provide, the obligee can be financially reimbursed according to the terms. When this happens, the compensation is provided by the surety, or the party who sold the bond to the principal.
Bonds are required for professionals in industries such as construction and auto sales, and they are a must for any contractors working on a construction project for the federal or state government, as well as contractors working on large commercial projects. The requirements for when they are necessary to vary from one state to the next, and you will need to find a company that specializes in selling the type of Arizona surety bond you will need.
How Does an Arizona Surety Bond Work?
There are several different types of surety that all have unique requirements, and an Arizona surety bond might be slightly different from what you would find elsewhere. Most of them do operate in roughly the same way, however. They work as insurance to an obligee, even though it is the principal who purchased the bond. Should the principal fail to fulfill their obligations to the obligee, the obligee can file a claim against it. If the claim is proven to be valid, the insurance company who sold the surety reimburses the obligee according to the terms. The underwriters of the policy will then be reimbursed by the principal for the claim.
Which Industries Require Bonding?
Most are written for the construction industry, especially for government and public works projects. This is especially true with Arizona surety bonds. Arizona is said to be one of the fastest-growing states in the country, so there is a significant amount of municipal construction and renovation projects going on at any given time — with so many contractors involved, bonds are a necessity. They are also often required of other construction projects that will cost over $100,000. Commercial bonds are mandated by individuals and businesses in the auto and real estate industries for licensing purposes.
Types of Arizona Surety Bonds
As previously mentioned, there are several different kinds of bonds available, but most of them can be categorized as either contract or commercial. Contract bonds are required of a contractor for government construction projects, and can be put into three categories:
- Bid – a bid bond provides protection to an obligee should a successful bidder back out of a project after committing to it. It essentially allows the obligee to be reimbursed for services that were promised but never rendered. They also provide protection should the principal fail to provide their own form of security or insurance.
- Performance – the performance kind guarantees that all obligations will be met faithfully by the principal.
- Payment – a payment bond guarantees that the principal will provide adequate payment to all subcontractors or suppliers that are involved in a construction project.
While contract surety solutions are mandatory for contractors and construction projects, commercial bonds are for individuals or businesses who provide other services. These include:
- License and permit bonds – license and permit bonds are often required of anyone engaging in businesses such as real estate and automobile sales. Licensing requirements can vary from one state to the next, so you will have to do some research to find out what type will be right for you. If you’re not sure where to start, reach out to one of our experts.
- Court bonds – court bonds are required of plaintiffs or defendants to preserve the rights of the opposing party in a court case.
- Fiduciary bonds – fiduciary bonds are reserved for those who provide court-supervised trust.
- Public official – as the name implies, public official bonds are mandated for certain public officials. They protect the public from malfeasance should an official fail to perform duties faithfully.
- Miscellaneous – these sureties do not fall into any of the above categories.
How Surety Bonds Benefit Principals
At a glance, it would seem that obligees are the ones who benefit from bonds. While these bonds do provide some much-needed security to these clients, they also provide credit to principals. Having a surety in place acts as a guarantee that any services required of a principal will be carried out to an obligee’s satisfaction. Most are required by law, but they are still worth your time and money even when they are not.
If you are in need of a surety in the state of Arizona or you are unsure of whether or not you need one, contact us today. We will be glad to answer any of your questions and help you find the bond that is right for you.
Our team provides affordable bonding and fidelity bond insurance. Every surety is prepared on a specific form, as prescribed by the entity requiring the bonding (obligee). Below is a list of commonly requested bonds. Apply for your surety bond Arizona now by completing our online application. If you prefer, you can download an application to complete and email to our bond insurance agency for processing. Quotes are always free.
- Arizona Contractor Bond
- Notary Public
- Private Investigator
- Process Server
- Sales Tax
- Defective Lost Title
- Utility Deposit