If you perform work that requires you to have a license, work with large amounts of capital or complete projects, you are likely familiar with surety bonds. A surety bond is a third-party guarantee that the agreement made between the other two parties will be met. There are several instances when you may need a surety bond in New Jersey.
When an entity issues someone a license, it is presumed that the holder of the license will abide by its terms and obligations. If a principal violates the terms of a license she or he has obtained, those who are damaged by his or her actions deserve to be compensated. The surety company pays the obligee damages if the claim is substantiated.
Contractors hired for a project are often required to obtain surety bonds to protect the investor or client. The obligee needs assurance:
- That the bidder is approved,
- That the work will be completed and
- That all those who do the work will be compensated according to the agreement they’ve made with the contractor.
A surety bond in New Jersey works a little like credit. Whether the principal pays the proverbial bill or not, the surety guarantees that the obligee is compensated. This protects both the principal and those for whom they perform the service.