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What is the Difference between Commercial and Contract Surety Bonds?




Oftentimes we get phone calls requesting a surety bond and the caller is transferred to a different department. This is because there are two primary classifications of surety bonds: contract and commercial.

While there is a good deal of overlapping, there are some key differences. Contract bonds usually include Performance Bonds and/or Payment, but that distinction alone is misleading as many commercial bonds are called performance bonds so name alone is not enough.

Below are some key differences to help determine if it is a contract or commercial bond:

  • A contract bond is distinguished by the existence of a formal contract.
    → A commercial bond is generally required on the basis of a legal statute.
  • A contract bond involves a bilateral contractual agreement. Non-performance by the party requiring the bond may void the obligation in its entirety.
    → A commercial bond guarantees a unilateral obligation on the part of the party posting the bond (the Principal).
  • Contract performance bonds are not cancelable, but conform to an underling contract.
    → Most commercial bonds are either for a set term or are cancelable by the surety company. 
  • Contract bonds guarantee a specific performance obligation to a specific party (called the obligee).
    → Commercial bonds, often referred to as licence and permit bonds, are for the benefit of the public good; meaning compliance with license and permit qualifications set by statute. 

Regardless of the type of surety bond needed, BOTH CONTRACT AND COMMERCIAL BONDS SHOULD BE HANDLED BY A SURETY BOND ONLY AGENCY! To most general insurance agents, the surety bond is a necessary evil to providing insurance. At Surety1, all we do is bonds. We will get your surety bond at the lowest possible cost with the most reasonable underwriting conditions.




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