A surety bond is a three-way contract between the surety (the company providing the bond), the principal (the contractor) and the obligee (the project owner). The principal usually applies for the surety bond with the surety and it is to protect the obligee’s interest.
In the construction industry, one of the most popular surety bonds are Contractor Surety Bonds.There are 3 kinds of Contractor Surety Bonds being used in the US:bid bonds, performance bonds, and payment bonds.All are needed for different purposes to ensure that the interests of the obligee are protected, especially if the principal fails to meet the terms of their contract.
Bid Bonds financially protect an obligee if the bidder awarded the contract fails to sign the contract and fails to provide the essential performance and payment bonds. Performance Bonds, on the other hand, are put in place to protect the obligee from monetary loss if the contractor fails to deliver the job according to their agreement. Payment Bondsare there to guaranteethat the contractor is going to pay the workers, subcontractors, and material suppliers involved in the project.
