surety bond definition

According to popular surety bond definition, these are bonds issued by an entity on behalf of a second party, whose obligations to a third party are guaranteed by the surety bond.

In the event that the obligations are not met, the third party will recover any losses via the bond.

Typically, surety bonds are used in construction industry.

In these cases, there is a three-way agreement between a surety company, a contractor and the project owner.

If the contractor does not fulfill the obligations of the contract, the surety party to the agreement assumes the responsibilities of the contractor and ensures that the project is completed.

Prime contractors to the federal government must post surety bonds on federal construction projects valued at $25,000 or more, by law.


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