Bonding: a smart and sometimes necessary solution

Bonding is a guarantee that protects another party from financial loss. Bonds can broadly be separated into two groups: surety bonds, which protect against non-performance of work; and fidelity bonds, which protect against misconduct. Bonding offers many advantages. For example, consider a company that bonds its employees. This mitigates risk, which can't hurt when appealing to potential business partners. Also, end users of a service (such as a muncipality taking bids on a construction project) can rest easy knowing they are protected in the event things don't go as planned.

Here are four common bond types:

ERISA Fidelity Bond: How does a corporate retirement plan insure itself against fraud or dishonesty by plan management? An ERISA fidelity bond accomplishes this goal. Also, ERISA requires those who “[handle] funds or other property” to be bonded, which covers those who have the ability to transfer money from the plan.

Performance Bond: Are you a contractor undertaking a project for a municipal or private client? You might be required to provide financial assurance that you will complete the project as required, which is the essence of a performance bond. These surety bonds are especially common when working with municipalities.

Bid Bond: Firms seeking to win a construction contract may have to be bonded, thus ensuring the project will be completed at the promised cost and scope. Should a bonded contractor bid and fail to carry out the job, the bond will pay the difference between that cost and the next-highest bid, as the International Risk Management Institute notes.

Licensing Bond: A performance bond and a bid bond might not be all of the bonding a contractor needs to secure to take on a construction project. A licensing bond, which asserts that a company will follow state/local laws and regulations, could also be necessary. It’s another layer of security for municipalities — and another hurdle for contractors to clear.

The Plexus Groupe offers expertise in a wide range of bonding. For more information, contact a property and casualty client service executive at 847-307-6100, or reach out to us via the Web.