What is a Surety Bond?

A surety bond holds someone financially accountable and by doing so, they are encouraged to act in an ethical and responsible manner. Watch the video below to learn the basics of surety bonds.


A Surety Bond is a Three Party Agreement

This three party agreement is a guarantee by the Surety that the Principal will fulfill their required obligations to the Obligee. 


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Types of Surety Bonds

There are a number of different types of bonds that are required by an obligee. However, they can be characterized in two main categories.

Contract Bonds

Contract bonds guarantee a specific contract and examples include:

  • Bid Bond or Letter of Intent - Guarantees that a contractor is submitting a bid in good faith and if awarded the project, they will enter the contract and be able to post a Performance Bond as required to proceed with the project.
  • Performance and Payment Bonds - These are typically issued together and guarantees satisfactory completion of the project.  They protect the owner if the contractor fails to perform and assures they will pay for labor and materials.
  • Supply Bond - Guarantees that a supplier will be able to provide all of the required materials to the contractor. 
  • Maintenance Bond - Guarantees that the workmanship provided on a project is dependable. It protects the owner against losses caused by poor workmanship or defective materials for a predetermined length of time after project completion.
  • Subdivision or Improvement Bond - Guarantees that the contractor will make certain improvements to the property and/or structures over a certain period of time after project completion.  This is often required by a municipality or public agency prior to entering into a contractor for a new development project.
Commercial Surety Bonds

Commercial surety bonds are required of individuals or businesses typically by the government, legislation or particular clients/jobs. These bonds are typically used to protect the public interested and some examples include:

  • License and Permit Bonds - Required by state, municipal or federal ordinance or regulation. 
  • Court and Judicial Bonds - A bond an individual would need when taking action through a court of law. These bonds promise payment of a sum of money that would be required in a court case.
  • Fidelity Bonds -  Protection for losses that are incurred as a result of fraudulent acts by specified individuals. Typically used to protect a business against acts of its employees or to protect a client from acts of your employees.
  • Public Official Bonds -  Provides a financial guarantee against loss that the official duties of an office will be faithfully performed in accordance to the law during time in office.
  • Notary Bonds - Protect the consumer receiving the bond from any errors or omissions made by a notary public.
  • Miscellaneous Bonds - Various other non-contract bonds that don't fit into a category above.

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