Bonds and sureties in the construction industry | VailDaily.com

Bonds and sureties in the construction industry

Rohn K. Robbins, Vail Law

Surety bonds are the underpants of many kinds of commercial construction; warm and comfortable, and in case of an accident…

Sureties go with bonds like… well, like elastic goes with undies to keep them from falling down around your knees. But (no, single “t”, no pun intended), perhaps a more exact legal definition of surety bonds and sureties is called for to aid your understanding.

Ok then, how about this?

Generally speaking, a bond is a written obligation assuring that a debt or obligation gets paid. It is insurance in a sense, but in some essential respects, a bond is unlike insurance altogether. More on that in just a sec.

The primary function of a surety bond is to protect the owner of real estate, which is to be developed from, well… taking it in the shorts. It is a written obligation by a third party (in this case, the “surety”) whereby the third party agrees to protect the owner from whatever losses may accrue in the event of the contractor’s insolvency. That is, the surety agrees to cover the owner’s losses if, mid-course, the contractor should go belly-up.

A surety, then, is the issuer of a bond. It is one who undertakes to pay money to the beneficiary of the bond in the event his or her principal (in this setting, the contractor) fails to perform. A surety is the party who incurs a liability for the benefit of another without sharing in the consideration that makes up the original deal. Stated otherwise, a surety guarantees the performance of one party to a deal to the other party to the deal while the surety him or herself is not a principal party to the