Running a construction company and dealing with contractors is very complex. With such big money involved in every deal and construction arrangement, all parties are always looking for ways to protect themselves. Surety bonds are one of the best ways to add unique protection to construction deals which can benefit everybody involved. Unfortunately, surety bonds are very misunderstood, with many people mistaking them for just another type of insurance. In fact, surety bonds have particular powers which help to strengthen the relationships of a construction contract and provide security for you and your construction firm. This article is a guide to how surety bonds help construction companies become better.

The Surety Bonds Relevant to Construction

There are various types of surety bonds that are used for commercial and commercial reasons, but in construction, the most useful is called contract bonds. Of these, there are 4 distinct types of contract bonds, which your construction company should consider implementing in any contract which your company makes.

The 4 Types of Contract Bonds for Construction Companies

Performance Bonds

Performance bonds are probably the most important type of surety bond that your construction company should consider. They guarantee that when your company hires a subcontractor to do a job on one of your projects, they must complete the work that you have paid them to do, and that has been agreed in your contract with them. The experts at explain that this is very important because it stops you from hiring a subcontractor who will take the down payment and then do a shoddy job or just not show up at all. The surety (a third-party guarantor which is unique to surety bonds) will pay you to get any outstanding or substandard work complete and will then take the necessary measures to get the money back from the subcontractor.

Payment Bonds

Payment bonds are another type of bond which helps to protect your construction company when you are hired to do a job. They ensure that as long as you complete the work which you have agreed to do, and which is laid out in the contract, the party which hired you must pay. If they do not, then the surety will pay you and will then seek the money from that party.

Maintenance Bonds

Maintenance bonds are important for your construction company as they ensure that any contractor you hire finishes the job as agreed. Similar to a performance bond, a maintenance bond makes sure that a subcontractor doesn’t just do a below-par job and then abandon the job. If they do, you will be given the money you need by the surety to get the job up to scratch, and then the surety will get that money back from the subcontractor.

The Parties Involved in a Surety Bond Contract

The word ‘ bond’ makes many people think that a surety bond is similar to any other kind of insurance. Surety bonds are different because of the presence of a third party, the “surety” which acts as a safety measure for the other two parties in the agreement.

Here are the names and roles of the three parties in a surety bond contract:

The principal is the individual or entity in the surety bond contract who performs the service that was agreed to in the surety bond agreement.

The obligee is the individual or entity in the surety bond contract who receives the benefits of these services and pays the principal accordingly to the agreement.

The surety is the unique third party who ensures that the other two parties honor their side of the agreement and takes the necessary legal steps against any party who renegades on their responsibilities.

How Surety Bonds Work in the Construction Industry

There is an inherent risk in all construction deals, but surety bonds help the two main parties to have better peace of mind about a business arrangement. This is because the third party, the surety, guarantees that all work will be completed, and all payments made, without the two primary parties having to waste time or resources on disingenuous contractual partners. Where there is an issue, the surety first pays the injured party so that they can stay on schedule and within the cost, then aggressively chases the other party to cover their costs plus extra.


There are so many ways in which surety bonds can make every construction companies’ operations and final results significantly better. Whether your construction company is a family-run firm or an international construction giant, there are so many risks involved which you need to avoid. Surety bonds are the single best way to protect yourself and your business and guarantee a successful future for your company.