To help a construction company and those that participate in or are otherwise affected by a construction project to understand the purpose of New Jersey surety bonds and how they work, it helps to consider surety bonds as insurance.
New Jersey surety bonds serve as insurance both functionally and logistically. The surety, the company who assures the obligee, the protected party of the insurance, that the principal, the construction contractor, can perform the tasks specified by the construction contract. In addition, surety bonds act as insurance in that they offset the costs associated with some unforeseen incident, in particular, the non-performance of the contract. A company or individual that has a lot of experience working with construction contractors, such as architects, government building managers, and housing developers, knows the many ways that mistakes or mishaps can lead to all sorts of unexpected costs. Some of these costs can be significant in proportion to the total costs of the job, and is the responsibility of the job manager to control these costs. This is the importance and the function of this insurance in the form of surety bonds.
Just as the traditional insurance agency is regulated to ensure that they are capable of underwriting the level of protection that they offer, New Jersey surety bonds are regulated and monitored by state insurance commissioners. This ensures that they perform as the insurance that the obligee expects.