What is a Obligee Bond?
A Obligee Bond is another name for a performance surety bond. What the Obligee bond does is provide a benefit for the Obligee. This is the standard way that a performance bond works. Specifically, a performance bond is a three party agreement. This agreement is between a Surety, an Obligor and and Obligee. The surety is the party that is provide the guaranty on behalf of the Obligor. The Obligor is the party that is actually doing the work for the Obligee. The Obligee is the party that is having something done pursuant to another contract. In any governmental contract, the federal government or municipality is the Obligee.
Obligee Surety Bond
The Obligee bond is provided to make sure that the party that is being protected is actually being protected.
Who is the Obligee on a Performance Bond?
Let's look at a good example: the building of an apartment complex. Let's assume that Bob's Development Company purchases a plot of land and gets the appropriate licenses and permits to build an apartment complex. So, Bob's Development Company goes out and hires Joe's General Contractors to build the apartment complex. Joe's General Contractors and Bob's Development has a contract between them to build the apartment complex within a specified timeframe, say one (1) year.
Bond for an Obligee
However, Bob's Development wants to make sure that Joe's General Contractors has the expertise and capacity to build the apartments per the contract and in the timeframe given. So, Bob's Development asks Joe's General Contractors to get a performance and payment bond. Then, Joe's goes out to several surety companies, like CNA or Liberty, and gets a performance and payment bond. The performance bond ensures that Joe's will actually build the apartments per the contract between Joe's and Bob's. The payment bond makes sure that Joe's will pay for all materials and pay all of Joe's subcontractors. This will guarantee that Bob's Development does not have a lien against the property so that Bob's Development can go forward with renting apartments or selling to another company. Also, the performance bond can last an additional year after the building is completed, just in case something is not discovered for that year.
In many cases, the obligee surety bond is a fiduciary bond, which is a bond that protects based on the acts of an individual. For example, many banks get a fiduciary bond in order to protect themselves from an employee's theft. Generally, these bonds are written on a number of employee basis. That is, the price is based upon having up to a number of employees covered and doesn't name all of the employees, as there could be significant turnover in the bank branch.
The bond obligee is the party that gets the benefit of the bond or underlying surety. Thus, if the Obligor defaults on its obligations, then the obligee will look to the surety to make it whole pursuant to the terms of the surety agreement.