What are surety bonds used for?

Different surety needs are met by different types of surety bonds. Surety bonds are a risk transfer mechanism whereby the risk of non-performance by the principal is shifted from the obligee to the surety company. Federal, provincial and local governments often require surety bonds to guarantee that business owners and individuals will comply with various laws protecting public funds. Contract bonds protect taxpayers and private construction owners by guaranteeing that projects will be completed properly, on time and without liens. Many commercial surety bonds protect and secure public funds and private interests.

There is a need to protect taxpayer dollars and private owners’ investment capital. Construction is a very risky business. Many contractors fail every year, leaving behind unfinished private and public construction projects – and billions of dollars in losses. Surety bonds offer the best way to protect against the risk of contractor failure. Essentially, they guarantee a contractor’s performance, assuring that construction projects will be built on time and that certain material suppliers and subcontractors will be paid.