Surety Bonds

In 2014, overall U.S. construction spending grew at a seasonally adjusted annual rate of $950 billion.*

A surety bond a three-way agreement between a surety, principal (the contractor), and obligee (the project owner). The surety bonds ensures a contract is completed should the contractor default. This means that, by a contractor obtaining a surety bond, the surety company must find another contractor to complete the contract or compensate the project owner for financial losses incurred if the contractor is unable to do so.

There are four types of surety bonds — bid, payment, performance, and ancillary — each of which depends on a contractor’s specific needs and circumstances. A surety bond is required for any federal construction contract valued at $150,000 or more. While not insurance for your business, think of surety bonds as insurance for your customers that you are required to pay for.

*“Surety bond sector strengthens on rebounding construction industry.” Business Insurance. August 2014.