Surety bonds provide essential support for business success in a wide range of industries. Here’s how surety bonds work and how they can help you build your business. 

What is a surety bond?

A surety bond is a three-party contract that is typically provided by insurance companies. It promises that if Party A (the principal) fails to meet its obligations to Party B (the obligee), Party C (the surety) will step in and meet those obligations. This promise provides added protection to Party B and added incentive for Party A to do its job well. 


Surety bonds are commonly used in construction, as well as in commercial settings. Many business dealings require the use of surety bonds. For example, federal construction contracts valued at $150,000 or more require a surety bond when a contractor bids or is awarded a contract. Many state and local governments also require surety bonds, as do many private companies. 

Which businesses need surety bonds?

Any business doing work that requires a surety bond will need specific types of bond. For example, there are four common types of contract bonds used in construction: 

  • Bid bonds protect the owner if a contractor accepts a contract but fails to sign it or to meet other obligations before starting work. 
  • Performance bonds protect the owner if a contractor doesn’t do the work they contracted to do.
  • Payment bonds ensure that subcontractors and suppliers are paid for their work. 
  • Warranty or maintenance bonds protect the owner against workmanship or material defects for a specific time after project completion.

Aside from contract bonds, organizations and individuals may need specific types of surety bonds to support a contractors’ license, reimbursements for Medicare, or to ensure that taxes are paid for the transport of fuel products. In almost every industry, there is a need for surety bonds!  Determining whether you need a surety bond can be complicated. Speaking to an experienced insurance broker can help. 

How do I ensure my business has the necessary surety bonds?

Many businesses first discover they need a surety bond when the issue arises during a contract bid. When this happens, don’t hesitate to talk to an insurance broker for advice on acquiring the appropriate bonds. 



Ready to learn more about surety bonds? 

Like many financial issues related to business, surety bonds can be complex. If you need help understanding surety bonds or other forms of protection against loss, talk to the team at Odell Studner. Our insurance brokers will help you support your business’s changing needs. Contact us today to learn more.