“How can I miss you if you don’t go away?”
Insurance companies issue performance bonds-but they are not insurance policies. If you reach the end of your auto insurance, if not renewed, it will expire. Plus, in the middle of the year, the business can cancel it. Boom, that’s all accomplished! There are no “forever” insurance policies.
It’s distinct with bonds of assurance. They’re more difficult to get first off. Then they don’t expire when you lastly have it! And a performance bond can not be cancelled by the bonding company. So how are they going to end?
The fact is, people focus on getting security bonds because they are a compulsory element of many transactions, but they don’t believe much about getting rid of the bond-ultimately. Let’s go over why and how to close a performance bond.
Each performance bond is married to a written agreement recognized in the bond’s first portion. They’re married until they die-until the agreement is finished. If you have a Performance and Payment Bond two-year agreement, you will have a two-year bond, unless the contract is extended. If the agreement is changed to a 25-month term, the bond will follow automatically. If the sum of the contract dollar is increased, the bond will follow automatically. The point of the bond is to ensure satisfaction with the results of the agreement by the Obligee (the beneficiary of the bond). So the bond stays in force until the proprietor of the bond / contract accepts the agreement finished.
To near the duty of the guarantor, the obligor needs to release or accept the agreement. The bond can not be cancelled or closed by the applicant / director (contractor). Only the debtor can put an end to it.
Closing evidence can consist of a Status Inquiry form completed by the obligee. The questions would be:
If the project IS completed:
Completion date: ___________ Acceptance date: _____________ Final contract amount: $___________
If the project IS NOT completed:
Approximate percentage or dollar amount completed: $_____________________________
Describe any disputes or performance issues on the project: _______________________________
Do you know of any unpaid bills for labor or materials? ____ No ____ Yes If Yes, please describe: _____________________
Current estimated completion date: ____________________________________
Now that we understand how a performance bond can be closed, why bother to do it? There are some excellent reasons for this …
- When the bond is issued, the collateral (bonding corporation) will conclude the liability on their books.
- They also receive the entire remaining premium instantly. There are two excellent reasons for that!
The Contractor / Principal
- It will restore that part of the bonding ability of the company to promote a fresh agreement. This enables them to qualify for more and bigger projects. That’s the source of revenue from their business.
- The project will be added to the company’s credentials once finished. They can now list the agreement as a work finished effectively. That’s how they build their resume.
- The applicant business, its owners and spouses are legally liable as a result of the compensation contract (a hold harmless granted to safeguard the security.) It is literally a liability to be revealed on their financial statements. This business and private liability finishes when the bonds are released.
The Bonding Agent
- The officer also wins because it is possible to issue more bonds. And that’s how they make a living.
When the work is closed, everyone wins and the bond is released. This is a needed method not to be ignored.
Steve Golia is the FIA Surety / America Ins First Indemnity Marketing Manager. Co. The firm has been specializing in contractors ‘ site, subdivision, performance and payment bonds since 1979.