What is a surety bond?

A surety bond is a type of safety bond that ensures a project is completed even in the case of a default on the part of the contractor. The company that ensures the surety bond is responsible for finding a replacement contractor to ensure the project is completed.

If a replacement contractor be found, the guarantor of the surety bond is obliged to compensate any financial losses that are incurred by the project owner. Construction contracts on federal projects that have a value of over $150,000 in the United States are required to include a surety bond during the bidding process.