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How to Get Rid of Surety Bonds and Why You Should

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How to Get Rid of Surety Bonds and Why You Should


 “How do I miss you if that you do not disappear completely?”

Performance Bonds are issued by insurance companies – but they’re not insurance policies. When you’re able to the conclusion of one’s auto insurance, it will expire or even renewed. Plus, the organization can cancel it in the midst of the year. Boom, it’s done! Insurance policies are not “forever.”

With surety bonds it’s different. First off, they’re harder to get. Then, whenever you finally own it, they don’t expire! And the bonding company can’t cancel an efficiency bond. So how can they end?

The truth is, people concentrate on getting surety bonds since they’re a required element of many transactions, but they think little of removing the bond – eventually. Let’s review why you wish to close out an efficiency bond, and how to do it.

Every performance bond is married to a written contract that’s identified in the very first part of the bond. They’re married until death – until the contract is completed. When you have a two year contract covered by a Performance and Payment Bond, you have a two year bond, unless the contract is extended. If the contract is amended to a term of 25 months, the bond automatically follows. If the contract dollar amount is increased, the bond automatically follows. The idea of the bond is always to guarantee the Obligee’s (the beneficiary of the bond) satisfaction with the performance of the contract. And so the bond remains in force until the obligee / contract owner accepts the completed contract.

To close out the surety’s obligation, a discharge or acceptance of the contract by the obligee is needed. The applicant / principal (contractor) can’t cancel or close the bond. Only the obligee can end it.

Closing evidence can consist of a Status Inquiry form completed by the obligee. The questions would be:

If the project IS completed:


Completion date: ___________ Acceptance date: _____________ Final contract amount: $___________

If the project IS NOT completed:

Approximate percentage or dollar amount completed: $_____________________________

Describe any disputes or performance issues on the project: _______________________________

Do you know of any unpaid bills for labor or materials? ____ No ____ Yes If Yes, please describe: _____________________

Current estimated completion date: ____________________________________

Now that individuals know how to close out an efficiency bond, why bother to do it? There are several excellent reasons…

The Surety

The surety (bonding company) will conclude the liability on the books when the bond is released.

In addition they immediately earn all the rest of the premium. Those are two good reasons!

The Contractor / Principal

That portion of their bonding capacity is likely to be restored to aid a new contract. This helps them qualify for more projects and larger ones. That is the origin of these company revenues.

When completed, the project is added to their credentials. They are able to now list the contract as a successfully completed job. That’s how their resume is built.

The applicant company, it’s owners and spouses have a legal liability that arises through the indemnity agreement (a hold harmless issued to safeguard the surety.) It generally is a liability which must be disclosed on the financial statements. When the bonds are released, the corporation and personal liability ends.

The Bonding Agent

The agent wins too because more bonds could be issued. And that’s how they make their living.


Everybody wins when the job is closed out and the bond gets released. This is a necessary process that will not be ignored.


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