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Editor’s note: Security bond agent Kevin Kaiser submitted the following post explaining surety bonds and their impact on green building.

Although green building innovations are often praised and encouraged for being revolutionary, their longevity oftentimes remains uncertain. Analyses of green building philosophies continue to be hot topics within the construction industry. More recently, has begun to catch the industry by storm. As long as the outcome of evolving green developments remain uncertain, the need for green surety bonds will continue to grow.

What are surety bonds?

Surety bonds are risk mitigation tools that are used to guarantee a high level of performance within certain industries. In the construction industry they are also known as “contract bonds” because they are frequently used in conjunction with project contracts. Each surety bond that’s issued acts as a three-party contract between three entities.

In the construction industry, the contractor who purchases the bond acts as the bond’s principal. The obligee is typically the government agency or other project owner who requires the contractor to purchase the bond to protect invested interests. The surety is the insurance company or specialized agency that sells the bond and becomes an intermediary between the principal and the obligee.

How are green performance bonds different from other contract bonds?

Various government agencies utilize surety bonds to regulate the construction industry in a number of ways. Contractors who work on public projects are likely familiar with , bid bonds, payment bonds and performance bonds, just to name a few. Green performance bonds work in a very similar way. As with other bonds, contractors are responsible for maintaining these bonds in case problems should arise as a result of their work on a project.

When it comes to green performance bonds, the main difference is that they specifically work to protect consumers against problems that arise from green building performance. For example, if a new, eco-friendly material should begin to deteriorate, the bond would require the principal and/or surety to compensate the project owner for his or her losses.

How will surety bonds help with green building uncertainty?

A number of problematic issues have arisen as a result of green building products and processes undergoing modifications. When flaws emerge within structures that were built using innovative green strategies, project owners need a way to recover their losses. Unfortunately, flaws that result from innovative products and building approaches are often unpredictable. For this reason, some jurisdictions have already begun implementing the use of green surety bonds just in case such problems should arise.

Will surety providers continue to issue these bonds if green building is unstable?

As long as there is a need to regulate the green building industry, government agencies will continue to find ways to make use of green performance bonds. If a large number of claims begin to emerge as a result of precarious projects produced under green philosophies, sureties might then decide whether or not they want to jeopardize their finances by backing such risky pursuits. Without green performance bonds consumers and project owners will be left without a financial guarantee. At this point the construction industry will have to reconsider how to best promote green building.

Whether or not green building and green performance bonds will continue to be financially viable might be uncertain. However, until professionals on both sides of the issue figure out how much leeway should be given to environmentally conscious contractors, green performance bonds will remain a major component of the discussion.

Kevin Kaiser is a principal with , a nationwide surety bond agency. He pioneered the that aims to educate consumers on the basics on bonding and how bonds can legitimize business by reducing fraud.