A surety is a kind of insurance that guarantees that a business or individual will hold up their end of a bargain when they are hired to provide a service to their client. It is basically a contract between three parties: a principal, an obligee and a surety. The principal is the group who hired to provide a service such as construction or the sale of an automobile, the obligee is the client of the principal and the one that the surety is intended to protect, and the surety is the underwriter who sells the bond to the principal.
Should the involved principal fail to fulfill their obligations to the obligee, they can file a claim in opposition to the bond and be financially reimbursed by the surety. This means that even though the principal is the party who is expected to purchase the bond, the bond itself is intended to protect an obligee from wrongdoing.
In Maine, surety bonds are required in industries such as construction, real estate and automobile sales. They are often required as part of the licensing process for professionals in these businesses, but the actual requirements may vary from one state to the next. We will be happy to work with you to determine which Maine surety bonds you will need for your own business.
How Do Surety Bonds Work?
There are many different types of Maine surety bonds available, but most of them work in roughly the same way. As we said before, a bond acts as insurance to an obligee, even though it is a principal who is required to purchase the bond. Principals have an obligation that they must fulfill to the obligee, whether that is the satisfactory completion of a construction project, selling a home or used vehicle, or even providing a service to the general public. If a principal fails to fulfill this obligation, the obligee can file a claim on the principal’s bond. If this claim is found to be valid, the surety who sold the bond in the first place reimburses the obligee according to the terms of the bond. It is then up to the principal to reimburse the surety for what was paid out to an obligee.
Who Is Required to Purchase Maine Surety Bonds?
Most Maine surety bonds are written for the construction industry, especially for any government or public works projects. They are also required for any construction project that carries a price tag of $100,000 or more. Meanwhile, commercial bonds are required of professionals in industries such as automobile sales and real estate, often for licensing purposes. These sureties are usually required of larger businesses who are selling multiple vehicles or homes. They generally aren’t required of individuals who are selling one vehicle on their own.
What Are the Different Kinds of Surety Solutions?
There are a variety of bonds available in the state of Maine, but most of them can be categorized as either contract bonds or commercial bonds. Contract bonds are sold to contractors in the construction industry, and they are required by law for government construction projects. Contract bonds can themselves be organized into one of three categories:
- Bid bonds – most contractors win government projects by successfully bidding on them. Once they do win with their bid and accept payment, they are obligated to follow through with the project. A bid bond protects an obligee in the event that the principal fails to fulfill this obligation or if the principal fails to provide their own insurance or protection.
- Performance bonds – a performance bond is in place to guarantee that all obligations will be faithfully met by the principal. This means that principals don’t just perform their duties, but they do so in a satisfactory way.
- Payment bonds – most construction projects that are large or complicated enough to require a bond will require at least a few subcontractors, suppliers and other parties not normally a part of a principal’s business. A payment bond ensures that these people are all paid for their work.
While contract bonds are required of those in the construction industry, commercial sureties are required of individuals or businesses providing other services. Commercial sureties include:
- License and permit bonds – License and permit bonds are bonds that are required of businesses for licensing purposes. They are often needed for industries such as automobile sales and real estate, and a principal must obtain one if they are to legally do business in the state of Maine.
- Court bonds – these are required during court cases. They can be purchased either by the defendant or the plaintiff to ensure that the rights of the opposing party are preserved.
- Fiduciary bonds – these are needed by a professional who is providing a court-supervised trust.
- Public official bonds – these protect the public should an official fail to fulfill their obligations faithfully.
- Miscellaneous bonds – these are bonds that don’t fall into any of the above category.
How Do Sureties Help Principals?
At first glance, it may seem like a sureties only benefits an obligee. After all, it is the involved obligee that the bond is supposed to protect. However, sureties can benefit principals as well. First of all, they are necessary for licensing purposes if you work in certain industries. In other words, you need them in order to stay in business. They can also allow you to build some credit for your business, especially if you are new to a particular industry. Finally, purchasing sureties even if you don’t need one represents a show of good faith. It is a guarantee that no real financial harm will come to any of your clients, which goes a long way when it comes to interacting with consumers.
How Can I Get Bonded in Maine?
For more information about Maine surety bonds or to find the bond that’s right for you, contact us today.