• Guarantee that the bonded project will be completed according to the terms of the contract and at the determined contract price;
• Guarantee that the laborers, suppliers, and subcontractors will be paid even if the contractor defaults and can result in lower prices and expedited deliveries;
• Smooth the transition from construction to permanent financing by eliminating liens;
• Reduce the possibility of a contractor diverting funds from the project;
• Provide an intermediary – the surety – to whom the owner can air complaints and grievances;
• Lower the cost of construction in some cases by facilitating the use of competitive bids.

There are two main categories of surety bond:

Contract Bonds

Commercial Bonds

Contract bonds guarantee a specific contract. Examples include Performance Bonds, Bid Bonds, Supply bonds, Maintenance Bonds and Subdivision Bonds. Commercial Bonds guarantee per the terms of the bond form..

Surety bonds are typically required for contractors who seek to work on government contracts. They are also required for persons and companies that are licensed by a governmental entity. Even when not compulsory, surety bonds make sense when a contract requires performance, because they help compensate obligees when principals fail to meet their contractual obligations. They do not make sense if the amount of possible damages is negligible.

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