License and Permit Bond Categories
Virtually all License and Permit bonds guarantee compliance with laws, ordinances or departmental rules. Some go further by including guarantees for payment of monies (such as taxes, fees, or fines), or for performance of contracts. A brief discussion of each broad type follows.
These bond forms are usually generic in nature, simple and straightforward. Most refer to a specific license (electrician or plumber, for example), and guarantee only that the principal will “COMPLY” with the rules pertaining to their license and trade. These rules usually address building code adherence, customer fraud prevention measures, and procedural compliance. Typical wording for these bonds will be similar to “…the principal has been licensed as an electrician in the City of Champaign. Now therefore, the condition of this obligation is such that if the principal shall indemnify the obligee against all loss which the obligee may be subject by reason of the principal’s non-compliance caused by the principal’s breach of any ordinance, rule, or regulation relating thereto, …”. The bond refers to ordinances or rules, and these bonds are usually easily written.
Third Party Suit
Some bonds also allow individuals to file claim on the bond. Any type of license & permit bond can include third party suit provisions, with typical wording similar to “…the people of the city/state/county…”. Although the responsibilities of the principal are no different, these bonds are considered more hazardous to the surety because any individual may file claim on their own initiative rather than making their complaint with the licensing office of the governmental body.
Compliance with Financial Guarantee
These bonds include guarantees that the principal will make payments to the obligee, typically of fees, fines, and taxes required by ordinance and associated with the principal’s license or permit. These bonds are also considered more hazardous, and the surety will typically examine financial statements and/or credit histories prior to issuing such a bond.
Compliance with Performance
These bonds also include a blanket performance bond, guaranteeing to all customers of the principal that all contracts will be performed in full accordance with contract terms. Typically much more expensive than other types of license & permit bonds, the underwriting process is also much more involved and includes reference checks. Note that the mere presence of the word “perform” within the bond form does not necessarily mean that the bond includes contract performance guarantees. The form may say something similar to “… faithfully perform all contracts entered into in accordance with building codes…”, which would be a compliance bond only. However, wording similar to “…Now therefore, if the said principal shall comply with all statutes pertaining to the license, and also perform all contracts undertaken, then this obligation…” invokes contract performance provisions.