Performance Bond Basics

2009-02-02 12:29:48

( Financial )



The Significance of Surety Bonds

With today's increasingly complicated business deals, people tend to be less secure about whether the parties they are dealing with will really deliver as promised. It is quite difficult to trust someone nowadays. With this paradigm in mins, insurance and surety companies have come up with various types of surety bonds.

Surety bonds serve to make you feel more secure and confident about the other party you are transacting business with. This is because a surety bond covers one particular transaction, just like an insurance policy. It protects the one who is requesting and paying for a good or service for any contingencies that may happen, which may hamper the consummation of the transaction.

There are countless types of bonds for just about anything. Some provide protection for services such as for preparing appraisals reports, setting up and completing a project, and timely delivery of orders. Employers feel better when their employees sign fidelity bonds, which is especially useful for highly delicate jobs that involve handling cash or valuables.

Performance Bonds

The performance bond is just one of many types of surety bonds. This bond guarantees you that a particular transaction will be completed by the other party, or you can claim compensation through the issuer of the bond.

Although the biggest users of performance bonds are building contractors, you can also use it for projects and events, deliveries and many other business activities.

If you are the one issuing a performance bond, you are actually building yourself up and showing the other party that you are serious about the transaction and that he can trust you. Besides, the performance bond will come in handy just in case you were unable to fulfill what you have promised. Even with your zeal in completing the job, there may be uncontrollable events such as disasters or accidents that get in the way.

Drawing up a Performance Bond

You need to get a third party, such as an insurance company, to prepare the written guaranty. In the bond, you need to state the sum of money that will compensate for any losses due to non-completion, which is usually equivalent to the cost of the project.

Be sure that you deal with a reliable third party and that you and the other party clearly understand what is written in the guaranty.


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