Surety bonds offer financial security for communities, developers and other stakeholders that contractors will do their work, pay subcontractors and perform other mutually agreed-upon duties. Surety bonds are agreements among a surety company, an obligee (owner) and the principal (contractor), where the surety ensures the contract is followed and parties are paid as necessary.
A surety is a person obligated by a contract under which one person agrees to pay a debt or perform a duty if the other person who is bound to pay the debt or perform the duty fails to do so. Usually, the party receiving the surety’s performance will first try to collect or obtain performance from the debtor before trying to collect from the surety. A surety is often found, for example, when someone is required to post a bond to secure a promise.