Surety & Commercial Credit

Basic explanation of bonding

A bond is a promise by a third party (the Surety) to pay – or sometimes perform – if a contractor fails to complete a contract. A bond can also help protect an owner from liens against the owner’s property if the contractor fails to pay workers or suppliers.

A bond is a three-way contract. The Surety is almost always a licensed insurance company, although a private person can on some occasions act as Surety. The contractor is called the Principal because the contract is his or her primary responsibility. The Surety and Principal promise, in the bond, that the contract will be performed according to its terms. Essentially, the Surety promises that if the contract is not performed, it will pay damages if the Principal cannot.

The Obligee or Beneficiary benefits from the promise described in the bond. The Principal and Surety both sign the bond; the Obligee does not. Nevertheless, the Obligee also has obligations under the bond. If the Obligee does not perform his or her own obligations under the contract, neither the Principal nor the Surety is bound. The bond is not an insurance policy. It merely provides an extra level of financial resource behind the contractor, a place to turn if the contractor cannot meet contractual obligations through his or her own assets.

Types of Contract Bond
  • Bid Bond
  • Consent of Surety / Agreement to bond
  • Performance bond
  • Supply bond
  • Labour & material payment bond
  • Maintenance Bond
  • Lien Bond / Release of Lien Bond
Surety Sources

(General – Not necessarily accessible by TCIM)

Other Resources
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