A Surety Bond is a contract involving three parties. 

  • The Principle, person or entity performing the service. 
  • The Oblige, the person or entity for whom the service is performed. 
  • The Surety, the entity that guarantees the principal will perform as agreed. 

In the event of a loss or failure to perform, the Surety Bond pays the oblige, not the principal. Surety Bonds work more like credit than insurance. 

Insurance is an agreement between two parties where the entity paying the premium receives the benefit in the event of a loss. 

Surety Bonding consists of two types: Commercial and Contract Surety Bonds. 

Commercial Surety Bonds, in most cases, are easier to obtain as they typically require only a signed application and current financial statement. 

The second type of Surety Bond, Contract, is the form you are most likely to encounter in large construction projects, particularly when public entities are involved. Contract Surety Bonds are commonly used in the construction industry to guarantee the performance of a contract. They include bid, performance and payment, and supply type obligations. 

  • A Bid Bond provides a way for project owners or contractors to pre-approve a bidder. The bond guarantees that if the low bidder wins the project, they will sign the contract and obtain the required performance and payment bonds. 
  • A Performance and Payment Bond guarantees the low bidder will complete the contract and pay all subcontractors and vendors. 
  • A Supply Bond guarantees that a commodity will be provided as ordered, at a certain place and time, for an intended purpose. 


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