Monday, July 7, 2008

Mechanics of the Surety Relationship

A surety contract is a three (3) party agreement in which the Surety guarantees to the Obligee (usually the Owner) that the Principal (usually the General Contractor) will perform in accordance with the terms and condistions of the contract. Meaning, if the Principal fails to perform, the Surety promises the Obligee that it will answer the default of the Principal. In normal language, the Surety promises the Owner that if the Contractor fails to perform its job, the Surety will step in and finish. Unlike an insurer, Surety's have the right to seek indemnification from the Principal if the Surety ends up stepping in and finishing the job. There are many types of surety bonds (i.e. statutory and common law). For more information please shoot me an email.

1 comment:

Anonymous said...

What happens if the GC is in bankruptcy? How does the surety company collect? We are probably going to see alot of this.