This is a bond given to protect the recipient against loss in case the terms of a contract are not filled, and the surety company assumes liability for nonperformance.There are different types surety bonds that are categorized into:
1 . CONTRACT SURETY BONDS -In the event where the obligee (project owner ) seeks the principal (a contractor) to carry out a contract is known as a surety bond. In this case, the contractor must get the surety bond from the a surety company. In this case where the contractor defaults, the surety company is forced to look for another contractor to complete the project or compensate obligee for any loss of finances. This type of bond is needed for any federal construction contract valued at $150,000 or more. The requirements in most states, municipal governments and private entities are similar for service contracts and occasionally supply contracts. The major types of construction surety bonds include; payment bond – This is a kind of a bond put in place so as ensure parties are paid for work done about the contract.Ancillary bond- This ensures the requirements of the contract, but not linked to performance are done. Performance Bond -this makes sure that the contract is completed per agreed terms of the contract. Bid Bond-this bond is put in place to ensure that the bidder on a contract will comply to and meet the requirements of payment and performance bonds if awarded the contract.
2. COMMERCIAL SURETY BONDS This is a broad range of surety bonds which include; Licence and permit bonds e.g insurance agent bonds. Fidelity surety bond e.g employee dishonesty bonds. Court bonds e.g indemnity and sheriff bonds. Fiduciary bonds e.g guardian bonds and lastly Public official surety bonds e.g tax collector bonds. The above are the two major subtypes of surety bonds.