Two of the main sectors that drive Florida’s economy are the construction industry and those classified as part of the service industry.
Most in construction are all too familiar with contract surety. These bonds guarantee the contractor hired will perform as specified in the construction agreement. The bond protects the project owner or the entity requiring the bond from the beginning stage of bidding through actual performance of the agreement and also assures the contractor will pay its subcontractors and suppliers when their work is complete.
Outside of contract/construction surety, there are many service businesses that are required to carry a bond. This type of bonding is termed commercial surety. No different from construction bonding in that the guarantee of bid, payment and performance are primary but the entity requiring the bond varies greatly.
So who needs a commercial surety bond? Manufacturers, suppliers, sign and awning contractors, low-voltage electronics installers, parking facility management companies, transportation services, outsourcing/technology solution providers, security guard firms, landscapers and the list goes on and on.
Many businesses are required by municipalities or the state of Florida to provide a bond naming the municipality or state as the beneficiary.
As the required limit of the bond increases, so does the intensity of the underwriting process.
The bond underwriter requires both financial and insurance underwriting information that can seem rather daunting the first time through.
The reason for this is simple in that the bond company is going to step into your shoes if you fail to perform as mentioned above. Unlike your businesses’ general liability policy, if the bond is called, the bonding company will perform as stated but when all is said and done they will come back to you to collect payment.
Thus, the reason for financial underwriting as well in that the bond company needs to determine how you are going to pay them back if a problem arises. The liability insurance policy pays on your behalf when you are legally liable for a covered loss and that’s it.
If you own a service type business, review your license requirements and contracts with your clients to assure your bonding requirements are met.
Anthony D. Smith, of Smith-Reed-Osmond LLC, 6400 Manatee Ave. W. Suite K, Bradenton, can be reached at (941) 792-3300.