to make sure they get their value and they don’t
have contractors walking out on work.”
Surety bonds fall into two basic categories:
contract and commercial. Contract bonds—
which represent the majority of the bonds
being used in Alaska—are often referred to
as construction bonds. They include bid, per-
formance, and payment bonds, which are aptly
named for their function. A bid bond assures
that the bid is submitted in good faith and that
the contractor will enter into the agreement
at the price specified. A performance bond
promises the owner that the contractor is ca-
pable and qualified to perform the contract.
And a payment bond guarantees the contrac-
tor will pay specified subcontractors, laborers,
and suppliers associated with the project.
Commercial bonds fall into a variety of categories: license and permit, fidelity, fiduciary,
public official, and court bonds. These surety
bonds are normally secured by companies and
working professionals who require bonding
for reasons unrelated to legal issues, construction projects, or other contracted work. Commercial bonds are typically used to support
laws such as license and permit regulations.
Commercial bonds fall into a variety of
classifications: workers’ comp self-insurance
obligations, license and permit, public official, and court bonds. These bonds are generally secured by entities that require bonding
due to legal issues, government regulations,
or requirements that may take the place of
insurance or letters of credit.
Regardless of type, surety bonds provide a
mechanism for ensuring a project gets com-
pleted if a principal goes out of business,
declares bankruptcy, or fails to deliver for
any other reason. They guarantee the surety
company will step in if the principal doesn’t
satisfy the terms of the contract.
Underwriting Requirements and Costs
A surety bond is a function of credit extension,
according to Travis Remick, vice president of
underwriting for Liberty Mutual Insurance
Company, one of the largest providers of surety
in the world. As such, the underwriter will gen-
erally assess what the surety industry refers to
as the “ 3 Cs”: capital, capacity, and character.
Capital includes a contractor’s financial where-
withal, liquidity, debt, and profitability metrics.
Capacity involves a contractor’s experience and
capabilities. It entails looking at the company’s
type, volume, and location of projects as well
as its key managers, internal job cost controls,
software, business plan, and future outlook.
Character, unlike capital and capacity, is a
subjective call by the underwriter. It focuses
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