What Are Surety Bonds

Surety bonds can be used by a number of different professionals and individuals who want to guarantee that a specific contractor or business will complete the work they were hired for within a predetermined time frame.

But while they are primarily desired by project owners wishing to ensure their project’s scope, they can also benefit contractors in several ways.

Let’s take a brief look at what a surety bond is before diving into who the participants of a bond are, what they’re used for, and what kinds of surety bonds you may be able to get.

What Is a Surety Bond?

A surety bond is a written agreement between two or more parties that is typically overseen by an outside source to ensure it’s upheld. It states that a specified task or service will be completed according to the standards of the bond and by the party indicated.

They can be used by individuals, small business owners, and even larger companies to help them gain bids and prove their credibility.

Who Are the Participants in a Surety Bond?

There are typically three participants involved with any surety bond: the obligee, the principle, and the surety.


The obligee of a surety bond is the individual, group, or company who is requiring that specific work be completed in accordance with terms they’ve established.


The principal of a surety bond is the individual or business that is hired by the obligee to complete previously specified work in accordance with the terms of the bond.


The surety is the entity that issues the bond to the obligee, and it is also the party that is responsible for ensuring the principal upholds their obligations. Commonly, the surety will come in the form of an insurance company that takes on financial responsibility if the principal fails to deliver on their end of the contract.

What Are Surety Bonds Used For?

Surety bonds can be used by a wide range of professionals to ensure the fulfillment of a wide range of contract options.

Primarily, surety bonds can be used by smaller businesses to help them outcompete larger companies who are bidding for the same project. The smaller business can have a stronger chance at success with a surety bond because the bond will confirm to project owners that you meet established underwriting requirements and can meet the obligations of a project.

Additionally, surety bonds can be used to reduce an obligee’s financial risk because it ensures that even if the hired contractors or business fails to uphold their end of the bargain, the obligee will be able to recover any financial losses and hire a new team.

Types of Surety Bonds

There are many different kinds of surety bonds available, and most of them can either be classified as contract bonds or surety bonds. These are contract bonds and surety bonds.

Contract Bonds

Contract bonds are a type of surety bond that is specifically intended to be used for construction projects. So for these bonds, the obligee is the project owner, and the principal is the contractor whose job it is to complete the project.

Additionally, there are a few different subtypes of contract bonds that may be used to fulfill different purposes.

Bid Bonds

Bid bonds protect the project owner’s interests if a contractor wins their project bid, but does not sign a contract.

Payment Bonds

This bond establishes that the burden of paying labor bills, material bills, subcontractor bills, and suppliers lies with the contractor, not the project owner.

Performance Bonds

Project owners are dependent on their contractors to oversee their projects. If a hired contractor fails to properly perform their job, a performance bond can help owners find a new contractor to complete the work.

Warranty or Maintenance Bonds

If any defects exist in materials or workmanship on a project, a warranty bond can protect the project owners.

Commercial Bonds

Commercial bonds are typically a government-required bond type. They work to make sure that the work being done is in line with both regulations and the public’s interest. 

Typically, commercial bonds come in the form of license and permit bonds, and they are required by most government agencies before they can obtain a true license or permit.

Key Takeaways

Surety bonds can be incredibly convenient for both project owners and contractors because while they primarily work to safeguard project owners against financial loss, they can also serve as proof of their reputation for the contractor

Further, they can serve as proof of the project’s scope and demands for contractors if their obligee claims they owe more work than previously agreed to and project owners if the work they required isn’t being completed.

If you’re interested in securing a surety bond for your business or project, reach out to our top-tier team at John B. Wright. Our agents would love to answer any questions you have and get you started on your bond today.