A surety bond is a three-party agreement by which the surety binds itself to discharge the contracted obligations of a principal to an obligee in the event that the principal fails to fulfill such obligations.

Commercial Surety Bonding

Commercial surety is comprised of the following major classes of bonds: customs and excise, licence and permit, fiduciary, lost document, and various special commercial bonds. Commercial surety bonds have proven to be a cost effective method of ensuring compliance with a variety of important laws and regulations. Most commercial surety bonds are mandated by government bodies and agencies (obligees) and specified in the requirements of various acts and regulations that pertain to particular business activities. Entities (principals) wishing to undertake such business are responsible to provide the required bonds. Certain private sector transactions also call for commercial surety bonds. The surety's obligation is limited to the bond penalty.

Contract Surety Bonding

The construction industry is the major user of contract surety bonds. They are required on most government projects and are frequently specified in the private and institutional sectors. Contract surety bonds, through the surety company’s strength and rigorous pre-qualification procedures, provide security to owners, sub-contractors and others that a contractor will transform plans and specifications into a timely, successful and complete project. In the construction industry, the surety is usually referred to as the bonding company or surety company. The obligee is usually the owner but also may be a general contractor or a major sub-trade contractor. The principal is usually a contractor.