Different Types of Surety Bonds
A surety bond is often required to protect third parties from breaches of contract or obligation. There are two main types of surety bonds in NJ. Commercial bonds and contract bonds ensure code compliance and contract fulfillment, respectively. Both types of bonds are typically not optional; that is, they are required in order to obtain certain licenses or begin a construction project.
1. Commercial Bonds
This bond is often required in order to get certain types of licenses. It protects third parties who are affected if the codes and guidelines expected are not followed by the licensee. The entity that issues the bond pays damages if the principal does not adhere to the terms of the license.
2. Contract Bonds
Contractors must be bonded when they take on construction projects. The contractor is the principal, and the owner or investor is the obligee who gets paid by the surety if the contractor does do the work to which they agreed. A contract bond ensures that if the principal does not operate in good faith, complete the job and pay for labor and materials, the surety that guarantees the bond will compensate for those costs.
Surety bonds in NJ are an integral part of doing business in certain industries, such as construction. They ensure that those who invest are protected.