10 Surety Contract Terms Explained
Many contracts involving the sale or exchange of goods and services may require surety bonds. This scenario applies beyond construction to include service contractors, manufacturers, underground utilities operations, building materials suppliers and installers, and retailers and wholesalers.
Here are 10 surety contract terms that you should be familiar with when exploring bonding options or acquiring surety bonds.
- Scope of work- The scope of work is an outline of the work to be performed on a project, including how the work will be completed and by whom, as well as the expected outcomes. The scope of work may occupy a section of the contract or be an addendum to the agreement. A well-constructed description of the scope of work helps reduce contract disputes by clearly defining and assigning responsibilities, as well as milestones and timelines for completion of the project.
- Dispute resolution- A dispute-resolution clause within a bonded contract speciﬁes the rights each party will have in the event of a contractual dispute. It may stipulate an arbitration process or alternative means to resolve disputes prior to litigation and parties must follow the prescribed guidelines as outlined in the dispute-resolution clause.
- Substantial completion- Substantial completion is the stage when a project is deemed suﬃciently complete to the point where it can be used for its intended purpose.
- Guaranty/Warranty- A contract provision that obligates a party to correct any defects associated with its services within a specific time frame. The time frame usually starts upon substantial or ﬁnal completion of the contracted duty.
- Contract termination- A contract can typically be terminated if a party does not fulfill its duties under the terms of the contract. A contract termination clause defines circumstances under which a party may terminate the agreement.
- Performance guarantee- A performance guarantee protects a party from the risk that a vendor does not fulfill its obligations in accordance with the specifications outlined in a variety of areas, such as production, delivery or installation.
- Latent defects- A latent defect is a defect that exists at the time a product is accepted but cannot be discovered through a reasonable quality control process.
- Liquidated damages- Liquidated damages are amount(s) agreed upon by the parties to a contract that establishes the damages that can be recovered in the event one party breaches the contract. It allows the parties to negotiate damages, before entering into the contract, that may be difficult to estimate and provides certainty in the event of a breach.
- Actual/Direct damages- Actual damages result from the direct, natural, proximate and immediate impact of the contract breach.
- Consequential damages- Consequential damages are damage, loss or injuries that do not flow directly and immediately from the act of the party, but only from some of the consequences or results of such act.
Choosing the Right Partner for Surety Bond Needs
With the number of variables included in any type of contract work, it’s crucial to equip yourself with as much knowledge as possible. At Travelers, our highly qualified specialists can help you understand not only the bonding process, but also the intricacies of the underlying commercial and construction contracts. With more than 100 years in the surety business, Travelers has the expertise to help you with all your bonding needs.
Plus, when complex claim situations occur, your business may benefit from Claim professionals who can guide you through every step of the claim process. Learn more about surety bonds from Travelers, then find an independent agent near you to discuss how Travelers can help meet your business’s needs.
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