Surety Bonds: Why They are a Useful Tool in Construction Industry?

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A surety bond is a guarantee provided by the surety to the obligee (project owner) that the principal (contractor) will complete the job as per the terms of the contract. There are many operational benefits of surety bonds for contractors. These include-

  • Obtaining a surety bond means contractors have been judged capable of fulfilling the obligations of the contract. This can go a long way when it comes to enhancing their reputation in the industry.
  • Banks can put restrictions on submitting tenders. A surety bond allows the contractor freedom to submit tenders.
  • As the financial status of the contractor has been assessed by the surety (an independent third party), the bids of the contractor are viewed more favorably.
  • The financial, technical and management assistance provided by the surety can go a long way when it comes to completing the project on time.

Also, the premiums payable for surety bonds are more competitive when compared to bank guarantees. With all these advantages, surety bonds are considered essential for contractors and are a critical tool in construction industry.