A surety bond guarantees to the obligee that the principal will adhere to the terms specified in the bond. These legally binding contracts ensure obligations are met between three parties:

Principal: The individual or entity requiring the bond
Obligee: The party requesting the bond
Surety: The insurance company guaranteeing the principal’s compliance

Contractor surety bonds serve several critical functions, including:

• Ensuring the bonded project is completed as per the contract terms and agreed price
• Guaranteeing payment to laborers, suppliers, and subcontractors even if the contractor defaults, which can lead to reduced costs and faster deliveries
• Facilitating a smooth transition from construction to permanent financing by removing liens
• Minimizing the risk of fund diversion by the contractor
• Providing a channel for owners to address complaints and grievances through the surety
• Potentially lowering construction costs by enabling competitive bids

Surety bonds fall into two main categories:

1. Contract Bonds: These bonds guarantee specific contracts, such as Performance Bonds, Bid Bonds, Supply Bonds, Maintenance Bonds, and Subdivision Bonds.
2. Commercial Bonds: These bonds guarantee compliance with the terms outlined in the bond form.