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It is no wonder that the underwriters for the surety companies are so stringent about the bonding programs that they allow for contractors.

Now here is the main reason why we have bonding; It helps to satisfy the greatest concern of a project owner, whether a contractor will fulfill his promise and not take off with the funds that have been paid to date leaving behind an unfinished project. In fact, the United States has made it a requirement to have a surety bond in place for any public project in an attempt to protect the public funds against default. The first being the Heard Act in 1894, it was then followed up and replaced by the Miller act of 1935 and still in place to this day. Privet owners also use bonds to protect their projects for the very same reason, but also many times they will use your bonding capability as a third-party pre-qualifier on the contractor that they are looking to perform the project. 

Overall a surety bond is a good thing for both the contractor and an owner. It can help ease payment worries while the project is well underway, as holding back payment to try and protect ones interest can cause many other issues and could even help to facilitate the failure of a contractor trying to complete the project by taking away cash flow to fund the current activities needed to keep the project moving forward. If a bond is in place, then the need to hold back funds to protect ones’ interest is not as necessary. Where it becomes dangerous is when those who want to abuse others when used as leverage, as they try to manipulate and redefine the interpretation of the original agreement for their monetary gain. That, unfortunately, does happen and that is yet another reason for contractors and subcontractors to keep good documentation on changes within the project.  

 

History Stretching Back

Bonding has had a lot longer history than you may have thought it has. Many have cited the first bond of the written record is from the library of Sargon I, King of Accad, dated 2750 BC and written on a tablet where a farmer had an agreement to cultivate the land owned by another and return half the product and this promise was guaranteed by a merchant. There are many warnings throughout the ages to not give surety to a stranger. Even the Bible warns of giving a surety:

my son, if you have become surety for your neighbor, you have given your pledge for a stranger; if you are snared in the utterance of your lips, caught in the words of your mouth, then do this, my son, and save yourself, for you have come into your neighbor’s power; go, hasten, and importune your neighbor. Give your eyes no sleep and your eyelids no slumber; save yourself like a gazelle from the hunter, like a bird from the hand of the flower. (Proverbs 6:1-5) (Morgan, the history and economics of suretyship, 12 Cornell L.Q. 153, 162 (1926))

 

If you are looking at a new provider for surety bonds and the like, give us a call and ask for Tysen at 888.279.9701 or fill out the short form below and he will get back to you.

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Alliance Insurance Group
7910 Ralston Rd., Ste 7
Arvada, CO 80002

Phone: (303) 279-9700
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