I assume that when the plumber is insured, this covers damage he could cause. My reading of Wikipedia finds the idea of being bonded against the noncompletion of a job, but is this what fumigators and plumbers mean by “bonded”?
We’re running a “create a business” program at our high school, and the kids need to get insurance, and we’re thinking of making them be bonded too, if it fits.
When I was bonded as a bank teller, I had to have polygraph and a background check. (Such as my background was at 17.) Presumably it is to insure that the employees are checked out to some degree.
There are different kinds of bonds that can be used in business situations. Examples include performance bonds, bid bonds, court bonds, and fidelity bonds. (The Wikipedia page on surety bonds lists many more examples, with links to the more common ones.) All involve a third party guaranteeing an obligation of some sort–if the bonded person or business does not complete the job, for example, the funds supplied by the bond will ensure that someone can be hired to do so. Or, if the bonded person has charge of a business’s funds, and steals them somehow, a fidelity bond makes sure that the business is paid back.
In this sense, bonds are like insurance, though they are not strictly insurance. Insurance is a two-party contract (insurer and policyholder); bonding involves three parties (principal, obligee, and the bond issuer; also often know as the “surety”). Given this, I am doubtful that your average householder plumbing customer (the principal) would have taken the time to get the bond issuer (the surety) to write a bond for a plumber (the obligee) in order to make sure the job is completed. However, the householder would be glad to know that the plumber has gone to the trouble of buying a policy of liability insurance–this helps protect the householder from the plumber’s actions.
But the same plumber also could be hired as a subtrade to a general contractor doing a much larger job (say, plumbing an office building under construction). In these situations, it is important that the job be completed by a certain date so other subtrades can begin work (for example, plumbing must be done before the drywallers go in). In this case the general contractor must be assured that a subtrade will finish on time, and so, might require that that subtrades either be bonded, or be bondable. Note that if the subtrade, through a delay or screwup, causes the surety to have to make good on the bond; the surety has a right of subrogation against the subtrade–it can use all legal methods to get the subtrade to pay back the funds the surety had to expend on its behalf. So it is in the bonded subtrade’s best interest to make sure the job is done right and on time.
At any rate, you should be able to see that the plumber–or the electrician or carpenter–could offer his or her services to a wider market by advertising that he or she is “bonded [or bondable] and insured.”
The only other thing about “bonded and insured” that you should be aware of involves fidelity bonds, and this is what cher3 touched upon. At one time, people who dealt with cash or negotiables were always covered by fidelity bonds; and while fidelity bonds are still available, it is much more common today to buy fidelity insurance to protect against employee theft or embezzlement. But because the two products are still offered, a person such as a bank teller could be both “bonded and insured.”
This is a very general overview of a complex topic–you can, if you like, take entire courses on bonding; although I will admit my knowledge only comes from reading a bonding course textbook I used as part of some research I did a few years ago. But I hope it helps somehow.
I was bonded when I was 18 years old and got a job as a nightwatchman. The way I remember it, I had to go to a police station and let them do some kind of checking up on me, and maybe they fingerprinted me.
I think it served the purpose of demonstrating that I was not obviously living on the fringes of the law. But, I don’t think anybody was promising anybody else anything about my performance.
Spoons covered it pretty well. Performance bonds are usually required by an entity that is hiring a contractor for major work. We always required performance bonds on work over $100K. If the contractor defaulted on the work, we would “go after his bond”. In other words, require the bonding company to hire another contractor to complete the project, or barring that, hire another contractor and backcharge the bonding company. This is an effective way for a government entity to protect the public investment. Copying the bonding company with nasty contractor correspondence about work completion is also a good way to apply pressure on the contractor. Contractors don’t like getting calls from their bonding companies.
My father is a general contractor. Surety bonds are a very good thing. Asking for proof of their presence on a job of any significant scale is almost expected in his business (custom build and heavy remodels). This way if ANYTHING happens to him, his people, his business, there is money available to finish the job by other means. If you cant afford to pay someone else all over again to finish the job, you want a bonded contractor.
My parents have a general contracting business and they did roughly $200,000 of work as a subcontractor on a housing development. Subsequently, the general contractor they were working for went bankrupt, and my parents just got paid $5,000 because the general contractor had a $30,000 bond that got divided up between six subcontractors. My mom says they are still owed the approximately $195,000 from the general contractor, but that they’ll never see that money because the contractor is bankrupt and whatnot.
This greatly confuses me. What good is being bonded if it’s only going to give your creditors a tiny fraction of what they are owed?
Part of the process is asking for proof of bond, just like a proof of insurance for cars is required for many jobs. The proof of bond documents will state the amount of his bond. That way if a sub wants to take on the job, they are doing so with their eyes open.
It wouldn’t shock me at all if the scenario they got into was intentional on the developers part if it was that far short. I’m sure they got lawyers involved but I would be curious why if they were unable to get mechanics leins against the buildings. Or was the whole thing done deal and houses sold by the time it got messy.