How to Use a Surety Bond

You might want to make sure your provider of services has a surety bond before you sign any major contract or hire a firm or individual to do work for you. It is your responsibility to ask for a surety bond, and in some cases one is actually required by law. Here's how to properly use a surety bond.

Instructions

1. Figure out what kind of loss you might incur and decide how much you need the bond to cover. Construction contracts of over $100,000 must be bonded by law. This is all paid for by the other party, not you.

2. Make sure that the bond covers everything it is supposed to. This includes ensuring that you are not left hanging, either with a half completed project or creditors asking for payment for materials and supplies or labor. (This can happen if a contractor takes all the money and skips town.)

3. Check all paperwork on a regular basis to be certain the contractor or provider is up to date on its surety bond agreement and that it hasn't been revoked.

4. Consider hiring bonded companies for services such as janitorial or security, particularly if they will have access to valuables such as at a jewelry store or art gallery.

5. Think twice before being the provider of a security bond for a court or jail matter. Only sign up if you can take the hit in the case of a default on the part of the person you are guaranteeing. This is a very risky bond to insure.

Tips & Warnings

• Make sure the company providing the surety is known and respected. Don’t be afraid to check them out and ask for references. Ask for referrals from trusted people who have used a particular bondsman for surety services.

• If a contractor or provider tries to tell you a bond is unnecessary, or tries to get you to pay for it, walk away. They are responsible for guaranteeing their work, not you.