There are three parties to an Arkansas contractor license bond, which is legally binding on all three.
The Arkansas Contractors License Board or the local license authority requiring the bond is known as the “obligee.” The obligee establishes the required bond amount, also known as the bond’s penal sum.
The contractor purchasing the bond is called the “principal.” The principal is legally obligated to pay all valid claims against the bond.
The bond’s guarantor is the “surety.” The surety sets the premium rate determining how much the bond will cost. As the bond’s guarantor, the surety agrees to extend sufficient credit to the principal to cover valid claims if necessary. However, the surety is indemnified against any legal responsibility for the claim.
The surety will investigate every claim and decide whether it is valid and needs to be paid. If the surety determines that the principal did, in fact, commit a violation and must compensate the injured party, the surety typically will pay the claim initially. But the principal must repay the resulting debt to the surety within a certain amount of time. Failure to do so can result in the surety taking legal action to recover the funds from the principal.
