What is a Surety Bond?

 A surety bond is a written contract in which one party guarantees another party's performance or obligation to a third party. It provides monetary compensation or satisfactory completion of an obligation should there be a failure to perform specified acts within a stated period of time.  Surety bonds are used to guarantee that businesses will complete the job they were hired for following certain rules or within a particular time frame. 

How does a surety bond work?

The surety writes an agreement or bond, guaranteeing the work will be done according to the terms spelled out in the bond. The surety’s role is to assure the government agency that you will complete its work as agreed.  If you don’t finish the project correctly, the surety will be financially responsible to the government agency. The surety then recoups its costs from you. 

 Types of Surety Bonds

1. Bid bond: This type of bond covers the project owner if a contractor wins a project bid but does not end up signing a contract.

2. Payment bond: This bond guarantees a project owner that a contractor will pay bills for labor and materials or to subcontractors and suppliers.

3. Performance bond: This bond assures the project owner that if a contractor does not perform the work, the surety will find another contractor to ensure the project is completed according to the contract.

4. Warranty or maintenance bond: The project owner is protected against any material defects or workmanship issues that may be found during the warranty period.