O'Reilly logo

Construction Contracting: A Practical Guide to Company Management, 8th Edition by Richard H. Clough, Glenn A. Sears, S. Keoki Sears, Robert O. Segner, Jerald L. Rounds

Stay ahead with the world's most comprehensive technology and business learning platform.

With Safari, you learn the way you learn best. Get unlimited access to videos, live online training, learning paths, books, tutorials, and more.

Start Free Trial

No credit card required

Chapter 7Contract Surety Bonds

7.1 Introduction

Surety bonds are very widely used in construction contracting, on both public and private construction projects. The use of surety bonds is, however, not unique to the construction industry; rather, surety bonds are used frequently in many applications in business and commerce.

In the law, a surety is a party that assumes liability for the debt, default, or failure in duty of another. A surety bond is the term for the contract that describes the conditions and obligations pertaining to such an agreement. It should be understood that a surety bond is not an insurance policy. Rather, it serves as an extension of credit by the surety, not in the form of a financial loan, but in terms of an endorsement whereby the surety company makes certain guarantees with regard to the actions or omissions of a contractor. Insurance protects a party from the risk of loss, while a surety guarantees the performance of a defined contractual duty.

Construction surety bonding involves three parties. By the terms of a construction surety bond, the surety agrees to indemnify the owner, who is called the obligee, against default or failure in duty of the prime contractor, who is called the principal. When the contractor has properly fulfilled all of its obligations, and following the expiration of any warranty period defined by the contract and covered by the bond, the bond itself expires, and the bond agreement is discharged and is no longer of any force ...

With Safari, you learn the way you learn best. Get unlimited access to videos, live online training, learning paths, books, interactive tutorials, and more.

Start Free Trial

No credit card required