The Little Black

Bond Book
The Contractor’s
Handbook for Surety

Kara Skinner
The Little Black Bond Book
The Contractor Handbook for Surety

Printed by:
90-Minute Books
302 Martinique Drive
Winter Haven, FL 33884
www.90minutebooks.com

Copyright © 2018, Kara Skinner

Published in the United States of America

Book ID: 180905-01174-1

ISBN-13: 978-1643200613
ISBN-10: 1643200615

All materials have been prepared for the general information purpose of learning
more about our firm, our services and our experience. The information presented is
not legal advice and is not to be acted on as such, since the information may not be
current and is subject to change without notice.

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to the author of this book.

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(863) 318-0464
Here’s What’s Inside…

Introduction ...................................................................... 1
What is Surety and Why is Surety So
Misunderstood? ............................................................... 2
The Three Parties That Make Up a Surety
Contract .............................................................................. 4
What Every Contractor Needs to Know About
Surety................................................................................... 6
Surety and Bond Categories...................................... 16
Who Qualifies for Surety ............................................ 24
How to Find Surety Bond Producers ..................... 30
Surety Etiquette............................................................. 31
How to Get Your Surety Bond Approved ............. 35
Glossary ............................................................................ 38
Introduction
“The Little Black Bond Book” is formatted as an
interview. I had a conversation with Jonathan, a
layperson who had no surety knowledge when
the conversation began. My hope is that you will
use this book as a handbook. You might not read
it cover-to-cover, but get the general idea in the
first few chapters and use the rest as a reference,
as needed.

Surety bonds are not simple. As a reference

book, you might not read all the definitions, but
it might be something that you can keep in your
desk (or your truck) when an invitation to bid or
a contract or a permit leads you to think, “I need
a bond.” I want you to pull out your handy little
book for reference, so you’re not nervous when
you call your surety bond producer and they ask
“What kind of bond do you need?”

I hope this book provides enough insight for you

to be less afraid to apply for surety credit.
Because surety is such an unusual and
complicated product, having just a small amount
of knowledge to talk to others about the topic of
surety will give you an edge over your
competition.

To Your Success!

Kara Skinner
1
What is Surety and Why is Surety
So Misunderstood?
Jonathan: Why is surety so misunderstood?

Kara: There is a lot of misconception in the

marketplace regarding surety bonds. Contractors
new to surety often don’t know why they need
surety credit or what the bond does. Most see the
costs and that it can be difficult and time
consuming to obtain. Surety is often confused
with insurance because many contractors
purchase their bonds from insurance producers.
This is primarily because to sell surety bonds,
the seller needs an insurance license. This gives
the customer the illusion that surety is an
insurance product, but surety is the opposite of
insurance in many ways.

If it isn’t insurance, what is this mysterious

product? Technically, a surety bond is defined
as a contract among at least three parties: the
obligee (the party who is the recipient of a
surety obligation), the principal (the primary
party who will perform the contractual
obligation, usually a contractor), and the surety
(the party who assures the obligee that the
principal can perform the contract).

2
3
The Three Parties That Make Up a
Surety Contract
Jonathan: Can you describe the three parties of
surety?

Kara: The three parties to a surety contract are

the Surety Company, the Principal and the
Obligee. Our first party is the Surety or
insurance company. In the United States,
corporate surety companies are typically
insurance companies. They join with the
principal. I really like to emphasize the fact that
the principal and the surety company are a team.
The surety is essentially setting the money aside
for the principal to guarantee some performance
or payment. Since this is a credit relationship,
the surety acts similarly to a bank.

The federal government requires that a

corporate surety be included on the latest US
Department of the Treasury’s Listing of Certified
Companies, which is updated by the federal
government every year. This list can be found on
their website at www.fiscal.treasury.gov.

The second party of the contract is the obligee.

The obligee is the beneficiary—the one who
benefits, the bond holder. When a bond is issued,
just as a check might be issued, the obligee is the
one who holds that bond, and can claim on that
bond.
4
The third party of the contract is the principal.
The principal is typically the contractor, who
joins with the surety company, and they are the
first in line for their bonded obligation. Whatever
that contract says, the principal is responsible to
fulfill that obligation. If the principal does not,
the surety company might step in.

Jonathan: The surety company oversees both

the principal and the obligee?

Kara: The surety company is the principal’s

partner, and underwrites both the principal, and
the obligation, to confirm the principal can fulfill
the obligation. The surety company underwrites
like a bank. They have the money to figuratively
set aside for the principal to guarantee whatever
is the obligation of the surety.

Jonathan: Let’s say you go into a department

store, and you want to apply for a credit card.
The bank is the surety company, the store is the
obligee, and you are the principal.

Kara: Correct

5
What Every Contractor Needs to Know
About Surety
Jonathan: Can you give us a layman’s
description or understanding of a surety bond?

Kara: A surety bond is a guarantee, a promise

that you will do something. It’s very much like a
loan from a bank or a deposit made to guarantee
that you will do something.

Jonathan: It’s like a promissory note, but a little

more nuanced.

Kara: It is a promissory note sold and regulated

through insurance industry. This product does
not protect the insured. It does not protect the
principal. It protects a third party.

There are thousands of different types of surety

bonds. Surety is not insurance; it’s assurance. A
surety bond is a three-party agreement. You
might hear it called a tri-parte agreement.

An insurance contract is a two-party agreement,

which is very different.
We’ll explore more on that topic later. The
difference between surety and insurance is that
surety is a credit relationship. Insurance is not a
credit relationship.

6
Jonathan: In what ways?

Kara: When you apply for insurance, the

insurance companies expect losses. They rate
you as a customer based on the possible losses.
With Surety, when a principal applies for a
surety bond, it is an application for credit.
They’re applying to qualify for a certain amount
of credit in the same way you might go to a bank
and get qualified for a line of credit or a credit
card. Banks do not anticipate losses. Surety
companies do not anticipate losses. They
underwrite based on that idea that there are no
losses, even though, of course, there could be.

If you are looking for a small surety bond,

around $5,000 or $10,000, you may only need to
provide the surety company the same personal
information that you might provide to a bank to
get a similar-size credit card: full name, address,
social security number, and bond type. They
might ask you some other questions, but it’s a
pretty simple application for a small low risk
bond.

If you’re going to the bank to borrow $1 million,

that’s a whole different kind of application, and a
$1 million bond may be very similar. When you
go to the bank and ask for a $1 million loan, the
banker will ask for copies of your tax returns,
your financial statements, and so forth; a lot
more information than a small credit card.

7
Jonathan: The company will expect tax returns
for surety bonds because, like credit cards and
loans, they’re underwritten based on income,
past bill payments, etc.?

Kara: Yes, and the surety company will run the

principal’s credit. Depending on the credit, the
company may either approve or decline the
principal’s surety bond request, or the company
may charge the principal more, depending on
their credit history.

Surety bonds are a privilege. The principal gets

approved for a surety bond guarantee. Not every
principal qualifies, and not every principal can
be bonded, unlike with insurance. Most people
can get insurance, but not everyone can get a
bond.

Jonathan: I would guess that there is an interest

rate tacked onto a surety bond.

Kara: It’s a fee. For insurance, the insured

person pays a premium. Since the principal
purchases surety from an insurance company,
the company calls it a premium, but it’s really
only a fee for pre-qualification—for the
underwriting. In surety, there are no anticipated
losses, so the premium does not include a loss
factor.

8
All surety bond rates are different. Surety
companies have different rate filings for different
surety products and differences in each state,
because they’re regulated by the insurance
commissioners of each state.

Jonathan: It also seems as though surety

underwriting is pretty misunderstood. Why is
that?

Kara: The main reason is when a principal meets

with an insurance agent to purchase a surety
bond, the principal often assumes that it should
be the same experience as when she is
purchasing an insurance product, and it’s not an
insurance product. It’s a totally different animal.
I like to say that surety bonds are the opposite of
insurance. Surety should always be placed by a
professional Surety Bond Producer.

A surety bond is more closely related to a bank

or borrowing relationship than an insurance
relationship. This is why it’s so confusing.

Let’s say a principal comes to an insurance agent

and wants $1 million worth of insurance. The
agent asks some underwriting questions, writes
it up, and the insured is on her way. If a principal
comes to a Surety Bond Producer requesting a $1
million surety bond, it’s a very different story.

9
In the same way, if a person goes to the bank to
borrow $1 million, the potential borrower will
have to provide much more information than if
he wanted a $1 million insurance policy.

By entering into a construction contract, the

contractor assumes the financial and legal risks
of executing that contract. The Surety is
underwriting to determine that the contractor
has the capacity and capability to assume those
risks. When the Surety issues a bond, it is
assuring the Obligee that the surety believes the
contractor has the capital, character and capacity
to complete their contractual obligation. If the
contractor cannot complete the contract, the
surety will. The surety is not in the contracting
business and does not want to complete the
contract, so they underwrite the contractor and
fully expect the contractor to be successful.

Jonathan: You said that the beneficiary can

claim on insurance, but that’s not the case for a
surety bond. Can you give me an example of how
claims work?

Kara: This is another main difference between

surety and insurance. The principal, who is the
person or entity purchasing the surety bond, is
never the beneficiary. When you purchase
insurance, you’re the beneficiary of that
insurance. You can make a claim on that
insurance.

10
For a surety bond, you, as the principal or the
insured, are never the beneficiary. You don’t
benefit from the surety bond except for the
privilege of being able to do something.

You can’t make a claim on your own surety bond.

That would be like making a claim on your own
credit card. You don’t make a claim on borrowing
money.

There are three parties involved in a surety

bond. The principal or the qualified entity
purchasing the bond, and the insurance company
(the surety company) partner together and
write a bond to the beneficiary, who is the
obligee. The obligee is the one who benefits.
Only the obligee(s) can make a claim on the
bond.

Many people see bail bonds on TV shows and in

movies, and they get the idea of how one works.
The bond is a guarantee that somebody will do
something. A bail bond is a guarantee that
somebody will appear in court. Bail bonds are
what we classify as ‘criminal surety bonds’. It’s a
similar piece of paper. It looks the same, and it
says many of the same things.

Jonathan: When is the most ideal time to sign

someone up for a surety bond?

11
Kara: Just as you wouldn’t get a credit card or a
loan from the bank unless you needed it, you
wouldn’t buy a surety bond unless you needed it.
That being said, it is a good idea to have a Surety
Bond Producer that you are familiar with, and
perhaps even have that producer work you
towards prequalification, so that the
underwriting process is not a last-minute rush.

The federal government, states, cities, counties,

and towns typically require surety bonds. Not
everybody will need one, but when someone
does, the obligee might say, “Go get a bond. You
can’t start work until you do.”

Jonathan: So, it is universal; the government

isn’t picking-and-choosing who they tell to get a
bond?

Kara: Federal Statute, State law, city and

municipal codes set forth Performance and
Payment bond requirements up front for
Contract bonding. Congress passed the “Miller
Act” in 1935, requiring bonds on most federally-
funded contracts. Each state has its own version,
sometimes called “Little Miller”. So, they’re not
just picking on the contractor. Private contracts
can sometimes be bonded, but most bonds come
from statutory requirements.

12
Jonathan: Can you talk a little bit about the
indemnity agreement?

Kara: In my opinion, the indemnity agreement is

probably the most important part of the
transaction between a principal and a surety
company. It’s important for the Contractor to
have a thorough understanding of the indemnity
agreement because they will be required to sign
it.

In general, the word “indemnity” means ‘to make

whole’. It’s just like borrowing money from a
bank. The principal must make the surety
company whole if there’s a claim. If the principal
defaults, and the surety company is required to
pay out to the beneficiary, then the surety
company will look to the principal to be
indemnified.

Each Surety Company has their own and often

many different Agreements of Indemnity, but in
general the agreement that the contractor will
sign says that the contractor will reimburse the
surety for all expenses as well as pay all
premiums. The agreement also allows the surety
to obtain background and credit information.
The agreement usually allows the surety to help
negotiate the resolutions of claims and use assets
to complete projects and provide funding.

13
Much of the information in the indemnity
agreement is common law and informs the
principal of these common laws. The indemnity
agreement is important because it strengthens
and formalizes the relationship between the
contractor and their surety company if there is
claim, so the surety can more effectively work
together to complete the contractor’s
obligations. The indemnity also allows the surety
to help the Principal recover third-party claims
against others who may have been responsible
for the claim or loss.

Jonathan: If I have a surety bond, and I have to

make a claim, then I have to repay the full
amount. Is that exactly what you’re saying?

Kara: First you would never make a claim on

your own bond. The idea is that when a surety
company starts the underwriting process, they
run the principal’s credit to make sure that the
principal can perform, pay, or complete the
obligation.

If a surety underwrites properly, and there is no

claim or default, the surety company never has
to step in. If the principal defaults and doesn’t
pay or perform the obligation guaranteed by the
surety bond, the surety company will pay out.

14
Because the surety company has made that
beneficiary (or obligee) whole, the surety
company will look back to the principal to be
reimbursed in the same way that the bank would
come back to you to be reimbursed if you didn’t
pay your credit card or mortgage payment.

Jonathan: So why would I need to get and pay

for bonds if I’m the only one that doesn’t benefit?

Kara: Surety is a privilege and being bondable is

an honor. It provides an advantage over other
firms that are not approved for bonding.

The goal of surety is to protect the public and

your tax dollars. Claims paid by a surety are the
expenses of the surety company and not a
burden on society and the public.

When a bond is issued, there is an assumption

that the contractor has been prequalified. So,
while the contractor may not be the beneficiary,
the benefit the contractor has is that they have
the privilege of entering into certain contracts
that require bonds that other firms may not be
eligible for.

15
Surety and Bond Categories
Jonathan: Can you tell us a bit about surety and
bonds?

Kara: Yes, there are two main categories of

bonds. The surety companies classify them a
little bit differently, but traditionally, surety
companies will have contract surety bonds and
commercial surety bonds. Commercial surety
bonds are essentially miscellaneous bonds.
Contract bonds are typically for construction
contracts.

Under contract surety, your construction

contractors will have bid bonds, performance
bonds, and payment bonds. Those are the three
main types of surety bonds for contractors.

When the principal bids a job, he may be

required to post 5%, 10%, or as much as 20% of
the estimate as a deposit. This deposit is the bid
bond. The bid bond guarantees that if that
principal, the contractor, is the low, successful
bidder, he will enter into a contract and provide
performance and payment bonds. Typically,
surety companies don’t charge, or they charge a
very small fee, for bid bonds. The surety
company is essentially pre-qualifying the
contractor. With that bid bond, the surety
company tells the Obligee that the contractor is
pre-qualified to enter into the contract.

16
If the contractor is the low, successful bidder,
and she enters into a contract, and a bid bond
was required, typically a performance and/or
payment bond will also be required. When
contractors enter into a contract, they sign a
contract and provide performance and payment
bonds.

Performance and payment bonds are just

what they sound like. A performance bond
guarantees that the contractor will perform that
contract. A payment bond guarantees that the
contractor will pay their subcontractors,
suppliers and the material people on that
contract. The performance and payment bonds
are made part of the contract.

The performance bond does not contain much

language yet guarantees anything written in that
contract. After initially approving the account,
the contract is really the most important piece of
underwriting. The surety company will want to
read the contract, and this is where the principal
and the surety company become a team.

The surety company has experience and

expertise reading contracts and can tell the
contractor about onerous clauses in the contract
and if they should go through the execution of
the contract or see if modifications can be made.

17
Jonathan: What is a “Bonding Line”?

Kara: Another important term in contract surety

is “line of authority.” A line of authority could be
something that the surety company gives to the
principal to say that they are pre-qualified for
contracts up to a certain amount. Some will call it
a “bonding line”.

Let’s use the analogy of a bank again. You might

go to the bank and get a line of credit. You don’t
know exactly what it will be needed for yet, but
you know that you will need some money, so you
go to the bank and get pre-qualified for, let’s say,
a $1 million line of credit.

It’s possible to do something very similar with

contract surety, if you qualify. You can ask the
surety company for a line of credit, or a line of
authority, i.e., “How much will you bond me for?”
Small contractors or those new in business might
not qualify for this, but it is something that
established contractors should know is available.

Developer bonds are another kind of bond that

some surety companies put into the category of
contract surety, and that other surety companies
put into the category of miscellaneous or
commercial surety.

18
These types of bonds are often confused with
performance and payment bonds, because they
often say “performance” on them. Because most
bonds have a performance element to them,
most bonds guarantee that you’re going to
perform something.

A developer bond is especially risky because the

developer must have the capital to do the
project. A developer is not typically paid by the
obligee, federal government, the state, the city,
or the county.

The developer must have the funds to complete

all aspects of the project, whereas a traditional
construction contractor, who bids a job to the
federal government or to the state, is paid for the
labor and materials to do the job by the federal
government or the state. The contractor doesn’t
need as much capital to be a contractor as a
developer needs for development.

For this reason, Surety companies want to write

these bonds for the developer/property owner,
not the contractor (or subcontractor) because
the bond is a guarantee of completion of the
bonded improvements, no matter what. The
contractor could get into a situation where the
owner/developer does not have the funds, or the
desire, to complete the improvements required
by the Obligee.

19
If the contractor (or subcontractor) has posted
the bond, they must complete the work to the
Obligee’s satisfaction, regardless of payment, or
face a bond claim.

Jonathan: Let’s say Warren Buffett wanted to

create an office complex somewhere in the
middle of the country. He could apply for a
developer bond because he’ll most likely be self-
funding, or have access to funding for the project,
right?

Kara: Right, and the city or county might require

that he provide a developer bond to guarantee
that he will do the offsite improvements, such as
building sidewalks and putting up stop signs, or
other improvements. He might have to put in a
fire hydrant or plant trees. The city and county
want a guarantee that these improvements will
happen before they give him a permit to build his
building. Or, if some small improvements remain
but the building is completed, the city or county
may require the remaining improvements be
bonded, to issue him a Certificate of Occupancy.

Jonathan: Let’s talk a bit about commercial

surety and some of their subcategories.

Kara: There are many different types of

commercial surety, and there are often many
names for those types. The standard way to
classify commercial surety might be license and

20
permit, court and probate, financial guarantee,
and other miscellaneous bonds. License and
permit bonds typically go hand-in-hand with a
license or permit. If a principal wants to get a
contractor’s license, she may also have to get a
contractor’s license bond, depending on what
state she is in licensed in. This basically
guarantees compliance with the licensing
requirements. It strengthens the laws,
ordinances, and regulations. These bonds protect
the general public.

Court and probate bonds are also called judicial

and fiduciary bonds. A judicial and court bond is
a general term for a bond that is required for a
court case or some action of a law.
A temporary restraining order might be a kind of
court bond. A probate bond is also sometimes
called a fiduciary bond. The word “fiduciary”
means to take care of somebody else’s money or
assets. A fiduciary bond guarantees the
performance and honest accounting of
administrators, guardians, and other fiduciaries
appointed by the court.

Financial guarantee bonds are, again, very

similar to what their name implies. They are
guaranteed payments. An example of one of
these bonds might be a tax bond to guarantee
that a taxpayer will pay his taxes or a lease bond
to guarantee payment of a lease.

21
Other miscellaneous bonds are bonds that don’t
fit into any of these categories, like lost
instrument bonds or public official bonds.

Jonathan: Are the court and probate bonds the

bail bonds you mentioned earlier?

Kara: Correct, bail would fit into court bonds,

but are classified as criminal surety bonds and
most insurance agents are not licensed to sell
criminal surety bonds.

Jonathan: You were talking a bit about

performance, payment and developer bonds. If
somebody defaults on a commercial surety bond,
are they under the same ramifications?

Kara: Yes, the principal must sign an indemnity

agreement that is very similar, if not identical, to
the indemnity agreement that they would sign
for their performance and payment bonds. An
example is a contractor license bond. If the
principal defaults on a contract with a
homeowner, the homeowner can go to the surety
company, depending on the state, and say, “I
want to make a claim on this bond.” The surety
company opens an investigation. The company
may pay the homeowner and then look to the
principal to be reimbursed, indemnified.

22
A surety company representative will probably
go to the principal first and say, “What
happened? Why didn’t you pay or perform? Pay
them back or perform.”

Remember, “default” in the surety industry often

means fraud and misrepresentation. A
contractor goes to someone’s house, collects a
deposit, and never shows up again. The bond
protects the general public.

23
Who Qualifies for Surety
Jonathan: What are the most common questions
you get about surety?

Kara: “How much can I get?” and “How much

does it cost?” And the answer is simple: It
depends. Each surety has different underwriting
guidelines and financial ratios and is willing to
take different risks. How much surety credit a
surety is willing to offer depends on these
financial ratios as well as the contractor’s
experience and character. The surety is often
required to file the rates they charge with the
insurance commissioner of each state that they
do business in. So, these regulations also
determine what rates the surety can charge.

Jonathan: What are the parameters you use for

determining who qualifies for surety?

Kara: This is where we get into underwriting,

which is what the surety company will do when
the surety bond producer makes a presentation
to the surety company for a new principal. The
“three Cs” are something that every surety
company, every surety underwriter, and every
surety bond producer should know. They
represent how principals are pre-qualified.

24
The first C stands for Character. The surety looks
at the principal’s honesty, integrity, and
openness. This is not an easy thing to
underwrite. The surety uses the other two Cs to
help determine character.

The second C stands for Capacity, or the ability to

perform. Does the contractor have prior
experience? Has she performed a job like this
before? This gives the surety company a good
feeling about the principal and whether he can
actually do the job. Using the performance and
payment bond as an example, if a principal
applies for a $1 million single job without ever
having completing a $1 million single job before
this could be a problem. A surety company will
want to see that the contractor has done jobs in
the same size, scope, and location in the past.

The third C stands for Capital. This is the easiest

thing to underwrite, but I don’t think it should be
the number one thing that surety companies
underwrite. They should take the other two Cs
into account very seriously. Capital is the
principal’s financial ability. Does she have the
financial wherewithal to perform a $1 million
job? Does he have the working capital to start a
$1 million job? That doesn’t mean the principal
must have $1 million.

25
For traditional performance and payment bonds,
they just need enough to get them through about
the first 30 or 60 days before they get their first
draw from their obligee.

Jonathan: You mentioned that it’s hard to

underwrite character.

Kara: It is harder to underwrite. Part of what the

surety bond producer does to ensure honesty,
integrity, and character is to call about prior jobs.
The producer gets references. Has the principal
really done a job this size and scope? How did it
go? Was there a problem on the job? If there was
a problem on the job, how did the principal
handle it? That is probably the best way to
identify character.

Another way a surety company might identify

character is via a credit report and by calling
suppliers and subs. Does the principal—this
contractor—pay on time? Did he fulfill his
obligations? That’s essentially what the surety
company is required to do: make sure that this
principal will fulfill his obligations.

When the surety company or surety bond

producer does prior job checks, they might also
ask about how organized, clean, and tidy the
work was on the job site.

26
Jonathan: It sounds like it takes the Surety a lot
of work to underwrite a program. What items
are needed to start this underwriting process?

Kara: This varies. I like to have a conversation

with the contractor to get an idea of their current
bond needs, as well as their intermediate and
long-term goals. As we’ve discussed, different
size and types of bonds have different
underwriting needs, and most producers have
questionnaires, underwriting kits, and
applications depending on the goal.

For a large, active program need, we would

present an underwriting kit with a questionnaire
and list of underwriting items which may
include, but not limited to information
pertaining to the company and its structure, job
history, financial statements of owners and the
company and bank reference.

Jonathan: How does someone get their bond

approved?

Kara: Applying for a bond is very similar to

applying for a loan or a credit card. If someone
applies for a small bond—between $5,000 to
$15,000 or $20,000, or maybe a little more—she
might just have to submit an application that
includes her name, address, and social security
number. The surety company will run her credit
because this is a credit relationship.

27
The surety company needs to know what type of
bond to look for. Remember, there are many
different types of bonds. For the surety company
to properly underwrite, the company needs to
know about the applicant’s obligation.

For a large contract bond, especially

performance and payment, the surety company
will need a lot more information. That’s when
the surety company asks for not only a credit
check (as with many bonds), but also
questionnaires, resumes, a business plan, both
business and personal financial statements, a
work-in-progress report, and a bank letter.

Jonathan: Once the bond or program is

approved, do you start all over next time?

Kara: When a surety has prequalified a

contractor and established a surety line of credit,
this gives the contractor and the surety bond
producer some indication of the bond program
size they are willing to offer. This works like a
bank line of credit in that there are size limits as
well as conditions that must be met during the
term of the program as well as financial updates
required to renew the line of credit. The program
the surety is offering usually has some
exclusions and limitations depending on the
surety and program offered.

28
This is usually offered for one year, or expires
soon after the contractor’s fiscal year end, since
most surety lines of credit and general
underwriting is based primarily on the fiscal
year-end financial statements of the construction
company.

29
How to Find Surety Bond Producers
Jonathan: Can someone find a surety bond
producer?

Kara: One way to find a surety bond producer is

through the National Association of Surety Bond
Producers (NASBP), which is a relatively small
community of experienced, knowledgeable
surety professionals; these surety bond
producers really know how to make a
presentation to a surety company and have the
relationships with the surety underwriters that
are helpful in getting a surety bond placed.

Jonathan: Are there other benefits to having a

Surety, and having a surety bond producer?

Kara: Sureties and producers are specialists in

your industry. They know what onerous clauses
to watch out for in contracts. Sureties pay
analysts who have a larger “feel” for the state of
the industry and all that goes into it. They also
have relationships with other professionals that
also specialize in assisting your industry, such as:

- Construction Accountants, Bookkeepers

and CPAs
- Bankers who specialize in Construction
- Attorneys experienced in contract review,
claims, and litigation
- Project management teams

30
Surety Etiquette
Jonathan: We talked a bit about it, but can you
explain surety etiquette?

Kara: We talked a bit about the indemnity

agreement. As an applicant, you should
understand the importance of an indemnity
agreement. Asking a surety company to waive
indemnity or personal indemnity—to not
require the principal to stand by their word and
work—will not make a contractor look savvy
and professional. We want to help the contractor
make a successful presentation to the surety
company, and to me, it is critical to understand
the importance of an indemnity agreement and
not asking for that to be waived.

Being honest about prior surety bonds and

relationships is important to disclose and says
something about the principal’s character.

When buying insurance, someone could

purchase all different kinds of insurance from a
bunch of different insurance companies, and it
would be no problem. Surety is different because
it’s a credit relationship.

‘Jumping a bid bond’ is a term referring to when

a surety company issues a bid bond and a
different surety issues the corresponding
performance & payment bonds.

31
Remember when I mentioned that a bid bond
doesn’t cost anything, and that the surety
company pre-qualifies them for their $1 million
bid? The surety company does a lot of work to
review a submission like underwriting the
questionnaire, many years of financial
statements, and so forth. The surety company
performs all the underwriting, issues a bid bond,
and typically charges a nominal fee or nothing at
all. If the contractor then asks a different surety
company to write the Performance and Payment
bonds, they are “jumping a bid bond”. This
means the first surety did all the work and the
second surety company gets the premium.

Most surety companies won’t work this way. If a

bid bond was issued by one surety company then
another surety company typically would not
knowingly issue the performance and payment
bond.

Another point of etiquette is a complete

underwriting submission. We understand that
you’re probably feeling pressure to quickly
provide a bond. This could tempt you to cut
some corners. Don’t do it. Sureties need all the
questions, yes even that one, answered so that
they can complete their underwriting quickly,
form their prequalification, and provide their
assurance to the Obligee. A complete,
professional submission will be given
preferential treatment by sureties.

32
Jonathan: Can you elaborate on asking to waive
indemnity, personal or otherwise?

Kara: We touched on that a little bit earlier. This

is an extremely important part of the contract
between the principal and the surety company.

Asking for indemnity to be waived is similar to

taking out a loan at the bank but not
guaranteeing, in writing, that you will pay it
back. Signing an indemnity agreement is about
good faith. By executing an indemnity
agreement, the principal is saying to the surety
company, “My word is good. I’m going to
perform whatever obligation you guarantee.” If
the principal doesn’t sign it, why would a surety
company want to guarantee that they’re going to
perform?

Jonathan: If someone is interested in working

with you, what’s the process you take them
through?

Kara: It’s very simple. I usually start out by

asking some very basic questions about the kind
of surety bond that the individual or contractor
wants.

We try to make it as simple as possible because

we know that most people don’t have surety
bond expertise.

33
Jonathan: It’s almost like you’re a specialized
agent.

Kara: That’s exactly it. We only write surety

bonds, and we do so nationwide and
internationally.

Jonathan: That means having to comply with

international laws?

Kara: Yes, or overseas contracts, or principals

coming to the United States. One example of an
international bond is when a U.S. corporation
wants to build something in Germany, so the
German government wants a guarantee that
corporation will perform the contract and pay its
subcontractors, suppliers and material people.
The German government asks for a guarantee or
surety bond.

Another example of an international surety bond

might occur if a company from Japan comes to
the United States to perform something. A surety
bond needs to be written for that Japanese
company.

34
How to Get Your Surety Bond Approved
That's where we come in. Integrity Surety has
the specialized knowledge and expertise. We are
your Bond Department, for surety needs
nationwide and internationally, and help service
your surety bond needs with confidence.

Step 1: Call us at 1-800-592-8662. We are

happy to talk to you about your current bond
needs. Or go to: www.integritysurety.com.

Step 2: We will send you the correct application

and directions on how to submit it when it's
completed.

Step 3: We underwrite, market, and work with

you to create and execute the surety bond on
your behalf.

If you'd like us to help, just send an email to:

[email protected] and we will
take it from there.

35
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NOTES:
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37
Glossary
8A: refers to the section in the Small Business
Act where the 8a program is described; a 9-year
business development program managed by the
SBA (Small Business Administration).

Affiliates: A company or companies that are

either subsidiaries of each other or share
common ownership.

Aggregate: The total amount of exposure or

liability of a principal or a surety. This could
include only bonded work or both bonded and
unbonded depending on the surety.

AIA: Acronym for the American Institute of

Architects. In relation to surety, the publisher of
standard template forms of surety bonds and
related contract documents.

Appeal Bond: One filed in court by a defendant

(the appellant), against whom a judgment has
been rendered, in order to stay execution of the
judgment pending appeal to a higher court, in
the hope of reversing the judgment.

Applications: A form used to collect information

to underwrite a risk.

38
Attachment: The legal process of taking
possession of a defendant’s property when the
property is in dispute.

Attorney: A person legally appointed by another

to act as his or her agent in the transaction of
business, specifically one qualified and licensed
to act for plaintiffs and defendants in legal
proceedings.

Balance Sheet: A financial statement listing

assets, liabilities and net worth.

Bankruptcy Trustee Bonds: Bonds which

provide a guarantee to the beneficiaries of the
bankruptcy that the bonded trustees, appointed
in a bankruptcy proceeding, will perform their
duties and handle the affairs according to the
ruling of the court.

Common Types of Bankruptcies are:

• Chapter 7: Calls for the “liquidation” of a
business and allows for the sale of the
assets to pay outstanding debts.
• Chapter 11: Calls for the “reorganization”
of a business and the debtor remains in
possession of the assets after the filing of
a plan for the reorganization.
• Chapter 13: Also called the “wage earner’s
plan”, enables individuals with regular
income to develop a plan to repay all or
part of their debt.

39
Bid Bonds: Bonds guarantee that a contractor
will enter into a contract at the amount bid and
post the appropriate performance bonds. These
bonds are used by owners to prequalify
contractors submitting proposals on contracts.
Bid bonds provide financial assurance that the
bid has been submitted in good faith and that the
contractor will enter into a contract at the bid
price. Bid bonds are the best bid security, as the
job has been reviewed by a surety and deemed
an acceptable risk and within the contractor’s
ability.

Bond: An instrument which guarantees the

integrity and honesty of the principal; his/her
ability, financial responsibility, and compliance
with the law or performance of contract. Bonds
are written by the surety on behalf of the
principal to ensure satisfaction to the obligee.

Bond Penalty: Or Penal Sum; the amount of, or

limit of liability of, a bond.

Business Financial Statement: A collection of

reports about an organization’s financial results
and condition. Usually consists of, at a minimum,
a Balance Sheet, an Income Statement (Profit &
Loss), a Statement of Cash Flows, and Aging
Reports of Accounts Payable and Accounts
Receivable. These statements should always
reflect an “End of Month” date and be fully
reconciled.

40
“Quality” will often be referred to regarding
business financial statement and refers to the
level of professional preparation: “In-House”
means the principal’s internal accounting team
prepared the financial statement. “CPA
Engagement” can be on the “Quality” level of
“Compilation”, “Review”, or “Audit”, and most
often is a year-end report.

Capacity: A term that refers to the size of a bond

which a surety is able to write. May also refer to
the size of bond which a Principal is approved
for. This is also one of the three C’s the surety
uses to underwrite. This describes the ability of
the principal to perform the obligation.

Cash Bond: Obligees may allow a Cash Bond as

security to be posted instead of a Surety Bond.
This is risky for the contractor, as you lose the
professional qualifying benefits of a surety to
review the job or the obligation. Also, you do not
have that cash available as working capital. Most
importantly, you lose control over the cash, as
there is no surety to negotiate or defend any
claim against it.

Cash Value of Life Insurance: The amount

received from certain types of life insurance
policies when liquidated prior to the insured's
death, as shown on the monthly/period policy
statement. NOT equal to face value. See Face
Value of Life Insurance.

41
Collateral: Security held by the surety company
to reduce the surety’s risk when issuing a bond.
Collateral may be in the form of cash, irrevocable
letter of credit, real estate, or control of contract
funds.

Commercial Surety Bond: This class of surety

bonds includes most miscellaneous bonds, but
do not include bid, performance, and payment or
fidelity bonds. There is usually a statute or law
requiring these bonds.

Completion Bond: Guarantees performance of a

construction project, and names as an obligee a
city, county, utility, lender or similar party in a
position to invoke the performance features of
the bond for his benefit without an obligation to
provide contract funds to complete.

Consent of Surety: Can apply to many different

requests. This is the obligee “checking in” with
the surety, before the obligee takes an action that
may affect the surety, such as releasing retainage
or changing a contract. Since a bond guarantees
an entire contract, if there is a large change
order, the Obligee wants the Surety to Consent to
the increase.

Contingent Payment Clause: aka “Pay when

paid” and “Pay if paid”. Primarily used in
construction subcontracts and materials
contracts, this clause can either delay a payment

42
obligation (General Contractor will pay
Subcontractor or Materialmen “X” days after
receiving payment from Job Owner) or remove a
payment obligation (GC will not pay
Subcontractor or Materialman if Job Owner does
not pay). States and Courts hold wildly different
interpretations of these clauses.

Continuity Plan: aka Disaster Plan or Resiliency

Plan, a plan, system or process of creating chain-
of-command, long-term-vision and funding for
prevention of or recovery from potential threats
to a company and its projects, such as death or
disablement of a key officer.

Contract: A legal document, often underlying the

obligation of a bond. Sureties must review the
terms and conditions of a contract before
agreeing to guarantee those terms.

Contract Bonds: A type of bond classification

designed to guarantee the performance of
obligations under a contract. These bonds
guarantee to the obligee that the principal will
perform according to the terms of a written
contract. Construction contracts constitute most
of these bonds.

Contract bonds protect a project owner (obligee)

by guaranteeing a (principal) contractor’s
performance and payment for labor and
materials.

43
Cosigner: An individual or entity that joins in
the execution of a promissory note to
compensate for any deficiency in the applicant’s
repayment ability. The cosigner becomes jointly
liable to comply with the terms of the contract in
the event of the principal’s defaults.

Cost Bonds: A type of bond guaranteeing the

payment of the cost of a trial. May also be called
a Cost of Appeal bond.

Court Bonds: A general term referring to bonds

required in some action of law. May be Fiduciary
or Judicial bonds.

Covenants: In surety, typically refers to

conditions set by a bank, which the borrower
must maintain, in order to continue a lending
arrangement.

Current Assets: Cash, liquid accounts, current

accounts receivable, a portion of inventory.

Current Liabilities: Obligations for which

payment must be made within 12 months.

Current Portion of Long-term Debt: One years’

worth of payments on a debt.

Damages: Term that refers to monetary

measures of harm which may have occurred in a
claim.

44
DBE: Disadvantaged Business Enterprise.

Defendant: The term that refers to the person or

institution being accused in a court case.

Defendant Bonds: Defendant Bonds counteract

the effect of the bond that the plaintiff has
furnished.
These bonds are more hazardous than plaintiff
bonds. Often, they require posting collateral to
be written.

DLA: Defense Logistics Agency.

DSBS: Dynamic Small Business Search, also

known as the SBA Profile:
http://dsbs.sba.gov/dsbs/search/dsp_dsbs.cfm

DUNS: Dun & Bradstreet maintains DUNS

numbers, also known as Unique Entity
Identifiers; this is a required element of an SBA
surety application.

Employee Retirement Income Security Act

(often called ERISA): The 1974 Act that created a
requirement for a bond to be posted, in the
amount of ten percent of the funds, on the
fiduciary of pension funds and profit sharing
plans.

45
Equity: The financial worth in an entity or item.
In business, the net amount that would be
generated upon liquidation.

Face Value of Life Insurance: The amount paid

to beneficiaries upon the insured’s death. NOT
equal to Cash Value. See Cash Value of Life
Insurance.

FAR: Federal Acquisition Regulation. The rules

of the Federal Government procurement.

FBO: Federal Business Opportunities, also

known as FEDBIZOPPS at www.fbo.gov.

Fidelity Bonds: Bonds designed to guarantee

honesty. Generally, the bond guarantees honesty
of employees. These bonds cover losses arising
from employee dishonesty and indemnify the
principal for losses caused by the dishonest
actions of its employees.

Financial Statement: A collection of reports

about an organization’s or individual’s financial
results and condition. Usually consists of, at a
minimum, a Balance Sheet, Income Statement
(Profit & Loss), Statement of Cash Flows, and
Aging Reports of Accounts Payable and Accounts
Receivable as of a given time or period.

46
Forfeiture Bond: A bond requiring payment of
the entire bond penalty upon default of the
principal, regardless of size of actual loss.

Funds Control: This is a surety tool to help

reduce the surety’s risk when issuing a bond and
refers to a professional third party paid a fee to
be responsible for collecting contract payments
and paying the subcontractors and suppliers for
specific contracts.

GAAP: Acronym for Generally Accepted

Accounting Principles, the standards for
accounting adopted by the US SEC and the
American Institute of CPA.

Guarantee: A promise to answer for the debt or

default of another.

GSA: General Services Administration gsa.gov.

HUBZone: Historically Underutilized Business

Zone.

IDIQ: Indefinite Delivery Indefinite Quantity.

This contract provides an estimated ceiling
dollar amount, although the dates of purchase
and the quantity of service are not specified.
Bonds for these contracts are less easy to place.

Income Statement: One of the main financial

statements (along with the balance sheet).

47
The income statement is also referred to as the
profit and loss statement, P&L, statement of
income, or the statement of operations. The
income statement reports the revenues, gains,
expenses, losses, net income and other totals for
the period of time shown in the heading of the
statement.

Indemnification: The act of guaranteeing

repayment to another party in the event of a loss.

Indemnity to Sheriff or Marshal Bond: A bond

which covers and indemnifies liability to a third
party, incurred by a sheriff or marshal upon
request of a party, in the execution of the process
of a court.

Insurance Agent: Licensed insurance agent,

broker, producer or representative.

Invitation to Bid: The request for proposals to

enter into a contract. Usually includes the scope
of work, location, proposed contract details such
as estimated size, duration, liquidated damages
and warranty requirements which a surety may
want to review.

Irrevocable Letter of Credit (or ILOC): an

instrument of collateral, which is an unbreakable
relationship between a bank and beneficiary,
typically a surety company or obligee.

48
The ILOC cannot be cancelled or reneged upon,
and is sometimes used in lieu of surety bond.

Judicial Bond: Bonds required of litigants who

seek to avail themselves of privileges or
remedies which are allowed by law, for the
protection of the opposing litigant or other
interested parties.

JOC: Job Order Contracting.

Largest Completed Job: A major underwriting

factor in determining program capacity and
bond approval.

Lessee: A tenant.

Lessor: One who grants a lease. Landlord.

License and Permit Bonds: A term used to refer

to bonds which are required to obtain a license
or permit in any city, county or state. These
bonds guarantee whatever the underlying
statute, state law, municipal ordinance or
regulation requires. They may be required for a
number of reasons, for example providing
consumer protection as a condition to granting
licenses related to selling real estate or motor
vehicles and contracting services.

Life Insurance Value: see Cash Value of Life

Insurance and Face Value of Life Insurance.

49
Lien: A charge upon real or personal property
for the satisfaction of a debt. See also Mechanic’s
Lien.

Lien Release Bond: See Release of Lien Bond.

Limited Liability Company (LLC): An LLC is a

hybrid business entity created by statute. It is an
unincorporated association of members which, if
properly structured, receives pass-through
federal tax treatment and limited liability for its
members.

Line of Credit: can refer to many things.

Generally, a pre-determined amount of credit
available to a borrower by the lender.
Varying types may be referred to as ILOC (see
Irrevocable Letter of Credit), BLOC (Business or
Bank LOC), HELOC (Home Equity LOC) OLOC
(Operating LOC) or WCLOC (Working Capital
LOC). A LOC may be used as collateral to secure a
bond or other obligation, increase liquidity of a
financial statement, or held by an obligee as
surety alternative, or other.

Litigant: A party to an action at law.

Little Miller Act: Varying State-by-state versions

of the Miller Act, which require surety bonds on
state public works contracts.

50
Liquidated Damages: During the formation of a
contract or invitation to bid, the amount the
parties designate for the obligee to withhold as
penalty or compensation upon a specific breach
of contract, such as late performance. Typically
stated in a “dollars per day” amount, or a formula
relating the value of the contract to the allowed
duration.

Lost Securities Bonds: Bonds given by owners

of valuable instruments (i.e. stocks, bonds,
promissory notes, certified checks, etc.) which
are alleged to have been lost or destroyed, in
order to protect the issuers against loss which
may result from the issuance of duplicate
instruments or, in some instances, payment of
cash value thereof. Note: for certified checks, the
issuing bank will often issue this bond.

Maintenance Bonds: Bonds that provide for the

upkeep of the project for a specified period of
time after the project is completed. These bonds
guarantee against defective workmanship or
materials. See Warranty/Maintenance.

MATOC: Multiple Award Task Order Contract.

Mechanic's Lien: A claim of right to detain

property exercised by one who has furnished
labor or material used on said property.

51
Mechanic’s Lien Discharge Bond: see Release
of Lien Bond.

Miller Act: (USC Title 40, 1935) The Miller Act

requires Federal contracts over a specified
amount must be secured, typically with surety
bond(s).

Miscellaneous Bonds (Also called Commercial

Surety Bonds): A term used to refer to bonds
which do not fit any of the other well recognized
categories of surety bonds. Usually a bond that is
not a contract bond (bid bond, performance
bond or payment bond).

NAICS: North American Industry Classification

System. This puts a number to your work
specialty. A government, surety or insurance
underwriter may ask you for (what phonetically
sounds like) “Nicks Code” – naics.com/search.

NASBP: National Association of Surety Bond

Producers.

NAVFAC: Naval Facilities Engineering Command.

NAVSEA: Naval Sea Command.

NAVSUP: Naval Supply Systems Command.

52
Notary Public Bonds: Include bonds that are
required by statutes to protect against losses
resulting from the improper actions of notaries.

Obligee: The person or institution to which a

surety guarantees that a principal will perform
as expected.

Obligor: The entity for whom the debt is made.

Under a bond, strictly speaking, both the
principal and surety are obligors since the surety
company must answer if the principal defaults.

Omnibus Language: A clause found in the

Agreement of Indemnity, which extends the
signer's indemnity to bonds written for "the
Applicant; individually; jointly with others or on
behalf of any of its subsidiaries, affiliates or
divisions or their subsidiaries, affiliates or
divisions now in existence or hereafter formed
or acquired; or on behalf of individuals,
partnerships or corporations. . . "

OMWBE: Office of Minority & Women’s Business

Enterprises – omwbe.wa.gov.

Open Penalty: A term used to refer to the

unlimited liability of the surety on a particular
bond.

Ordinance: A municipal regulation.

53
Organization Chart: Often called “Org Chart”,
the hierarchical representation of an
organization of people or companies or
affiliations.

Payment Bonds: Labor and Material Payment

bonds guarantee payment of the contractor’s
obligation under the contract for subcontractors,
laborers and materials suppliers associated with
the project. Since liens may not be placed on
public jobs, the payment bond may be the only
protection for those supplying labor or materials
to a public job.

Penalty: A term used to refer to the monetary

size or limit of a bond. (Also called Penal Sum)

Performance Bonds: Performance bonds

guarantee performance of the terms of a
contract. These bonds frequently incorporate
payment bond (labor and materials) and
maintenance bond liability. This protects the
owner from financial loss should the contractor
fail to perform the contract in accordance with
its terms and conditions.

Personal Surety: An individual who acts as

surety for another.

54
Personally Identifiable Information (PII): As
used in information security, is information that
can be used to uniquely identify, contact, or
locate a single person or can be used with other
sources to uniquely identify a single individual.

Plaintiff: The person or institution that brings

an action in a court of law.

Plaintiff Bonds: Plaintiff bonds are required of a

plaintiff in an action of law. They generally
guarantee damages to the defendant caused by
the plaintiff’s legal action.

Plat Bond: aka Subdivision Bond, Completion

Bond, Improvements Bond, or Developer Bond.
Required by City or County as a condition of
permitting or formal platting of land, usually
guarantees completion, performance, or
maintenance of self-funded improvements on a
development project, such as sidewalks, roads,
utilities, environmental restoration, etc.

Power of Attorney: Authority given to a

person(s) to act for and obligate another to the
extent defined in the instrument. In surety, an
instrument which appoints an attorney-in-fact to
act on behalf of the surety in signing bonds.

55
Premium: A sum of money paid as consideration
for a bond. Does not include a factor for the
payment of losses as does an insurance
premium, and is often referred to as a Fee.

Principal: The individual or entity required to

be bonded by the obligee. The party whose
performance, actions, honesty, or responsibility
is being guaranteed.

Profit & Loss (P&L) Statement: One of the main

financial statements (along with the balance
sheet). The income statement is also referred to
as the P&L, income statement, and the statement
of operations. The P&L reports the revenues,
gains, expenses, losses, net income and other
totals for the period of time shown in the
heading of the statement.

PTAC: Procurement Technical Assistance Center,

an excellent resource for guidance and education
in the government contract marketplace, and a
partner of Integrity Surety.
http://washingtonptac.org/

Rates: The amount of money per thousand

dollars (or percentage) used to determine the
bond premium.

Receiver: One appointed by a court to take

custody of property. Sometimes bonded.

56
Reclamation Bonds: A bond guaranteeing that
an institution will restore land that it has mined
or otherwise altered to its original condition.

Release of Lien Bond: A Lien against real estate

may be filed for an amount claimed to be due for
labor or materials used on said property.
Pending final determination of the property
owner’s liability, the owner may “release” (aka
discharge or replace) the lien by “bonding
around”; giving bond conditioned for the
payment of any amount that may be found due to
claimant with interest and costs. Note: usually
100% collateralized.

Renewal: Continuance of a bond obligation for a

subsequent term, in consideration of an
additional premium charge.

Replevin: An action of a law used to recover

specific personal property.

Retainage: A portion of the agreed upon

contract price deliberately withheld from
progress payments until the work and
documentation is complete, to assure that
contractor or subcontractor will satisfy its
obligations and complete a construction project.

Retainage Bond: An optional bond posted in

lieu of withholding retainage.

57
Retained Earnings: Accrual of net profits which
remain within a company, and not distributed to
shareholders.

RFP: Request for Proposal.

RFQ: Request for Quote.

SBA: An acronym for the Small Business

Administration. The SBA has a program to help
small and minority owned contracting
businesses obtain surety bonds.

SDVOSB: Service Disabled Veteran Owned Small

Business.

SFAA: An acronym for the Surety & Fidelity

Association of America, which is the surety
counterpart to ISO.

Status Report: A simple survey sent to an

Obligee by the surety, requesting job progress
status, current contract value, estimated
completion date, and general condition of job.

Statute: A law enacted by a legislature.

Statutory: Required by, or having to do with, a

law or statute.

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Statutory Bond: A bond given in compliance
with statute. Such a bond must carry whatever
liability the statute imposes.

Subcontract Bond: One required by a general

contractor of a subcontractor, guaranteeing that
the subcontractor will faithfully perform the
subcontract in accordance with its terms and will
pay for labor and material incurred in the
prosecution of the subcontracted work.

Subdivision Bond: A type of bond that

guarantees that the owner of certain property
will make specific, obligee-mandated
improvements to property being developed, at
his own expense, such as streets, sidewalks,
curbs, etc. Also called developer bonds and
completion bonds.

Submission: The presentation of underwriting

data to a surety or its agent.

Supersede: To replace.

Supersedeas: A writ staying execution of a

judgment pending appeal.

Supply Bonds: Bonds that guarantee

performance of a contract to furnish supplies or
materials. In the event of a default by the
supplier, the surety indemnifies the purchaser of
the supplies against the resulting loss.

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Surety: A person or institution that guarantees
the acts of another. The state of being sure or
certain of something.

A formal engagement (such as a pledge) given

for the fulfillment of an undertaking; a
guarantee. One who has become legally liable for
the debt, default or failure in duty of another.

Surety Bonds: Surety Bonds are three-party

agreements in which the issuer of the bond (the
surety) joins with the second party (the
principal) in guaranteeing to a third party (the
obligee) the fulfillment of an obligation on the
part of the principal.

Timber Bonds: Timber buyers guarantee that

they will, within the prescribed amount of time,
harvest only the specified timber and leave the
premises in a prescribed condition. Payment
guarantees fluctuate as the timber is cut, sold,
and the seller is paid.

Treasury Listing: A financial rating published

by the US Treasury Department that lists the
maximum size of federal bond a surety is
allowed to write. Also called the T Listing.

Trustee: A trustee is a person named to manage

a business’ assets and work with the business’
creditors.

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Warranty/Maintenance: This can refer to
several situations. Construction or Supply
Contracts may have a term of Warranty or
Maintenance for a defined number of years,
where the Principal is responsible. Typically, 1-2
year term for workmanship, longer terms are
more difficult to approve. Manufacturers should
provide longer product warranties.
Completion/Subdivision/Developer/Plat
performance bonds are often replaced with

Maintenance Bonds upon completion of the

performance.

Work-On-Hand Reports: A type of financial

statements or schedule listing a contractor’s jobs
in progress. AKA WIP (Work-in-Progress).

Workers’ Compensation Self-Insurers Bond:

Workers’ Compensation laws, at the state and
federal level, require employers to compensate
employees injured on the job.

An employer may comply with these laws by

purchasing insurance or self-insuring by posting
a workers’ compensation bond to guarantee
payment of benefits to employees. This is a
hazardous class of commercial surety bond
because of its “long-tail” exposure and potential
cumulative liability.

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Working Capital: The liquid assets available to a
business, primarily to fund projects. Typically
calculated as current assets, less current
liabilities.

WOSB: Women Owned Small Business.

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