What is a Surety Bond?

A Surety Bond is NOT an insurance policy but is a guarantee made between three parties; a ‘Guarantor’ (either an insurance company, private surety company or bank) a ‘Contractor and/or Principal’ and a ‘Beneficiary and/or Employer.’

The Guarantor guarantees the Contractor will perform the obligation stated in the bond.  The person or firm they owe the obligation to is known as the Beneficiary.

If the Contractor fails to perform the obligation stated in the bond, both the Contractor and the Guarantor are liable on the bond, and their liability is “joint and several” (either the Contractor or Guarantor or both may be sued) and the entire liability may be collected from either of them.

Examples

The “obligation” stated in a bid bond is that the Contractor will honour its bid.

The “obligation” in a performance bond is that the Contractor will complete the project; and

The “obligation” in a payment bond is that the Contractor will properly pay suppliers.  This is similar to credit insurance and can be used to replace or top up credit policies.