What is the Importance of a Contractor Indemnity Bond?
You should understand the importance of an indemnity bond and why it’s required. It helps you get the desired compensation for losses incurred by you against the breach of contract by the other party.
The fact cannot be held for denial that the construction industry is a fantastic competitive marketplace. Contractors used to find plenty of works requiring them for as long as surety bonds guarantee their performance of the contract and watch out for supporting a balanced flow of work. Surety bonds are the ones required by contractors on various public projects that are being handled by state, federal or local government agencies. And private owners are on the lookout for bonds for their contractors.
So, what is an indemnity bond?
An indemnity bond is a bond created to protect the obligee against the breach of the contract by the second party (the principal). It, in fact, is a promise by a guarantor to pay the one party, which is, of course, the obligee, a certain amount, if another part isn’t able to fulfill the terms of a contract. The role of this bond is to protect the first party against losses that occurred as a result of failure to meet the obligation by the principal. Also known as a surety bond, an indemnity bond is considered a three-party agreement involving the obligee, the principal and the surety. There are various types of surety bonds.
There are can be various reasons where an indemnity bond is required such as
1. Construction Industry
2. Buying a Home
3. Buying Companies or Shares
4. Government Indemnity Schemes
Are surety bonds like insurance?
An indemnity bond, which is also known as a surety bond, is an insurance policy that defends one party from loss, damage or, failure caused by another party. If you have suffered losses, it’s necessary for you to look for a genuine and professional contractor indemnity bond agency that can help you in this regard. Loss to be indemnified can be in a form of compensation or legal exemption from liability.
As long as there is no breach of contract by the second party or the principal, there will be no need for the surety to pay or perform. The principal is the main responsible party under the bond and must be in agreement to repay the surety for any claims it sustained due to the fact that the principal wasn’t able to live up to the agreement. Many companies require contractor indemnity bonds and so would you in future. Well, there can be a possibility that the project is not delivered on time and as promised. So the contractor promises to cover the purchaser against various losses he will incur resulting from the failure to deliver what was supposed to by the set time limit.