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There are two major types of bonds: Surety and Fidelity.


A Surety bond is an agreement under which one party, the surety, guarantees to another party, the obligee, the performance of an obligation by a third party, the principal. There is a need for suretyship whenever an office, position of trust, contract, license or other right or privilege is offered conditioned that the one to whom the grant is made will perform the obligations he has assumed.

Surety bonding has many characteristics of bank credit. The surety does not lend money, but it does allow the surety's financial resources to be used to back the commitment of the principal, thus enabling the principal to acquire a contract or license with the obligee. The obligee receives guarantees from a financially responsible surety company licensed to transact suretyship. 
The most common types of surety bonds include:


Contract Surety - There are four primary types of contract surety bonds that the government or an owner of a project may require a contractor to obtain: 

Bid bond - assures that the bid has been submitted in good faith, that the con-tractor intends to enter the contract at the priced bid and provide the required performance and payment bonds. 

Performance bond - protects the owner from financial loss in case the con-tractor fails to perform the contract in accordance with its terms and conditions. 

Payment bond - guarantees the contractor will pay certain workers, subcontractors, and materials suppliers. 

Maintenance bond - guarantees maintenance on the work that was done. These bonds usually run for one or two years after the bond contract is complete.

A Fidelity Bond, also known as Employee Dishonesty bond, indemnifies a business or organization for its loss caused by the dishonest and fraudulent acts of its covered employees. In some cases coverage can be extended to cover losses to third parties caused by your employees.


Business Services Bond - also known as third party employee theft coverage - a type of fidelity bond that provides protection against a firms liability for its customers loss caused by dishonest acts of the firms employees. In the last several years, the trend to use outside service providers has increased. As this trend has grown, so has the requirement for this type of bond. This requirement extends to many contracted services, including computer programming operations, building contractors, printing operations, security guards and staffing firms, just to name a few. Many major firms are requiring third party employee theft coverage for any servicer who wants to work for them.


ERISA - provides protection for Employee Benefit Plans and helps protect plan as-sets. The 1974 Employee Retirement Income Security Act was enacted by Congress to regulate employee benefit plans, and requires every plan to have a bond to protect its plan assets. If a business provides medical, dental, life or retirement plan benefits for its employees, the business is responsible for the plan assets. It is recommended that the business discuss with their attorney, the plan administrator, and/or obtain local ERISA compliance information regarding the amounts of coverage necessary for their plan.


License and permit bonds: required by state, municipal or federal ordinance or regulation. These are compliance bonds assuring the obligee that the principal will conduct business in a normally acceptable manner and/or according to specific written standards such as a building code. Other examples include performance and payment bonds, customs bonds, tax bonds and warehouse bonds.

Judicial Bonds: where a litigant is allowed to have a particular remedy in ad-vance of a final decision by the court, a bond must be posted to protect the op-posing litigant from loss in case the final decision is adverse to the other litigant. Judicial Bonds are separated into two categories:


Court Bonds - Required in a judicial proceeding where a litigant, in ad-vance of a final decision by the court on the merits of his claim, is allowed the remedy sort in their suit upon the condition that he files a bond.


Fiduciary Bonds - Fiduciary bonds required of those who administer a trust under court supervision, such as executor, administrator, guardian, trustee or receiver.


Public official bonds: required by statute for certain holders of public office, to protect the public from malfeasance by an official or from an official's failure to faithfully perform duties. A true Public Official is one who is accountable to the public. Their responsibilities are generally considered serious enough that he or she is required to take a public oath of office. Many officials elected or appointed are required by law to furnish an official bond before taking office.


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