The Basics of Surety Bonding

Presented by:

William J. McConnell, P.E., J.D., CEO

The Vertex Companies, Inc.

Engineering | Construction | Environmental | Claims | Technology
What is a Surety Bond?

Obligee

Principal Surety
Types of Surety Bonds:

• Bid Bonds

• Performance Bonds

• Payment Bonds
Surety Bond Requirements on Federal and
State Funded Projects:

• Heard Act of 1894 (for all intents and purposes this is the
start of the contract surety industry in the U.S.)

• Miller Act of 1935 (40 U.S. Code §3131 / FAR 28.102-1)

• “Little Miller Acts” (CRS 24-105-202)

Differentiating Surety Bonds from Insurance:

What is a Surety Bond?

• Underwritten for zero loss

• Bond are project specific
• Three party agreement
• Owners typically selects the bond form.
• Coverage is typically 100% of the Contract Price
• Surety has the right to the contract balance and
indemnity from Contractor in event of a claim.
• Bonds requirements are statutory for public work and
voluntary for private work
What is Traditional Insurance?

• Underwritten with the anticipation of a loss – actuarial

exercise
• Insurance spreads anticipated losses among a large group
of similar risks
• Two-party agreement
• Coverage usually term specific and renewable
• Policy forms vary by insurance company
• Coverage up to policy limit, less the deductible
• Claim – no right to insured’s assets