A bond is made to protect the obligee against violation of the contract. Three parties are involved by this bond; they are the obligee, the principal and the surety. The surety gives guarantee that the principal will perform his duty according to contract. Types are involved by the bond. Performance of this contract determines the rights and obligation of the obligee and the surety. The contractor use contract bond and bond that is industrial. With the Support of the performance and Payment bond the obligee could be guaranteed, that the principal will perform his duty according to condition and the terms of the contract. In failure of the principal the surety must complete the contract. The obligee has every right to sue the surety and the principal.
Prequalification of surety bond
The company that is surety issues the contractor with bond. Then this bond is issued to him when the principal complies with ability to complete the job within the time and in the contract price. The founder and the Surety Company review the business performance that is principal. He should write of adequate resources great and experienced skills to continue the business. This process was followed to reject the contractor.
Borrowing Ability of surety bonds
In an unsecured basis, performance and payment bonds have been issued to some contractor. This facility is provided depending on the building company’s strength, expertise and personal indemnity. But the builders charge position is shown. When payment bond is issued to the subcontractors, they are guarded by supplying the contractor with labor that was suitable.
Claim surety bond
Bond both the obligee and the principal as duty to carry out the contract. The obligee has every right to sue the surety and the principal. Then he/she can request the surety when the owner does not satisfy with the operation of the contractor.
The surety has options;
- He may do the contract with his own builder.
- He might appoint a new contractor for construction of the contract.
- He can help the owner by devoting the whole contract amount required to complete the contract.
- He can pay the penalty amount of the bond.
When payment bond is issued, the surety must pay the rightful claims of their subcontractors and suppliers by constructionbond insurance company.