Surety Bonds are required for a reason, usually to protect public money. Many contractors and commercial businesses get frustrated by their bond requirements and will put the requirement to the side and put their full attention to what they feel needs it. Unfortunately for them, the obligee will feel quite differently about what is most important and what needs to be done.

Some commercial businesses will begin operating prior to properly filing a bond. This can create stiff fines and other penalties. A Curves for Women Inc. in Shelbyville, KY failed to file their surety bond prior to selling memberships. The Curves had to hault all long-term memberships sales by state order. The suit asks the court to void all previous contracts sold without a bond, refund all funds collected, and fines of $2,000 for each membership sold. This is a prime example of a business operating without the state required bonding and paying a hefty price for it.

When it comes to contractors, they will often want to obtain a bid bond anyway possible to get their foot in the door and worry about the performance bond (the one that guarantees the contract) at a later time. One thing that contractors must understand is what a bid bond actually does. A bid bond guarantees that if the contractor is awarded the job, the surety will provide the performance bond to guarantee the contract. If the surety refuses to write the performance bond the bid bond would cover the costs of the spread for the next lowest bidder. Therefore, for a surety to approve a contractor for a bid bond, they must also qualify for the performance bond. If a contractor decides to post cash for the bid because he/she can not obtain an approval for the bid bond, then their money is at risk. If the contractor can not obtain a performance bond, their posted cash will be used to cover the bid spread. It is not that it is impossible to obtain a performance bond in these cases, it is just that they may require substantial collateral.

Regardless of what type of business you are in, a surety bond is not something anyone is happy about having to obtain. It may be an inconvienience of your time and assets, but the requirement is in place not to protect the principal, but the obligee. If you must obtain a commercial bond, be sure to do so or you will pay a far higher price down the road. Be careful if you are a contractor trying to get your foot in the door on a big job. Think it through and talk to a professional bond producer to discuss what options are available to you.