Surety bonds, otherwise known as contract surety bonds or performance bonds, are instruments issued by an insurance company to guarantee the performance of the contractor. They ensure that the contractor will fulfill the requirements of his contract with you. In the event of noncompliance, you have the right to file a claim under the surety bond. If you are having construction work done on your home, for instance, you will want to ensure that your contractor has a surety bond in New Jersey in a sufficient amount.
Types of Surety Bonds
Basically, there are four different types of surety bonds:
- Performance Bonds that guarantee fulfillment of contract requirements
- Bid Bonds that are obtained by a contractor bidding on a job
- Payment Bonds that protect suppliers and subcontractors by guaranteeing payment
- Ancillary Bonds that guarantee performance of requirements that are incidental to the contract
In the previous example where you’re having construction work performed on your home, the performance bond is the form of surety bond that most concerns you.
What if the Contractor Fails to Complete the Job?
If your contractor fails to complete the work in accordance with the contract, you have the right to compel the insurance company to either complete the performance, or reimburse you for any financial and loss. The insurance company will first attempt to persuade the contractor to complete his performance. Contractors are not able to work in their chosen field without surety bonds, so most will not jeopardize future bonds by refusing performance. If the contractor still refuses, the insurance company will either pay you under the terms of the bond, or they can opt to hire another contractor to complete the work.
Contact your local insurance agent if you need further information regarding the need for a surety bond in New Jersey.