If you are the owner of a construction project you’ll want to be guaranteed that contractors and subcontractors can do the job that you contract them to do. A surety bond basically does just that; it ensures that the contractors will fulfill their side of the agreement. A surety bond is therefore a legally binding agreement between at least three parties:

• The ‘Obligee’ – the owner of the project; the party who is the recipient of an obligation by the principal
• The ‘Principal’ – the primary party (contractor or subcontractor) who will be performing the contractual obligation
• The ‘Surety’ – the insurance company that guarantees the obligee that the principal can and will perform the task, i.e. fulfill the contract

It therefore goes without saying that major (construction and maintenance) projects, both public and private, heavily depend on bonding to avoid financial risks and failure on the side of the contractor. This means Federal Government organizations, State and Local Governments and Private Project Owners will not award contracts to companies who can’t be bonded. As a contractor, you’ll probably also need a bond to qualify as a bidder (‘Bid Bond’). Other bonds that are related include bonds for performance, payments (ensuring a contractor will pay his labor force and suppliers), and License and Permit Bonds (these guarantee the adherence to statutory provisions for public projects by obtaining or renewing certain licenses). Finally, Maintenance Bonds are used to cover workmanship and material risks after the completion of a project. Although Maintenance Bonds can stretch for a number of years, one year is a typical period.