Surety bonds can be a useful tool to accommodate a diverse range of risks that typical risk transfer methods may not explicitly cover. Below, we explain what surety is, and describe the three most common types of surety bonds that you should consider for your next project. What are Surety Bonds? A surety bond is a pledge made by a surety to an owner requiring a third party, such as a contractor, to faithfully perform their obligations in an underlying contract between both the owner and the third party. They are typically used by operators in the construction industry. For a complete breakdown of how surety bonds work, click here. Bid Bonds This bond guarantees that, should a contractor submit a winning bid, but refuse to perform the work needed to complete the project, the surety will pay the penalty that was agreed upon. Typically, this penalty is the difference in price between the low defaulting bid and the next lowest bid. Otherwise, the penalty could be a set penal sum, generally equating to 10% of the bid price. Performance Bonds A performance bond is a promise that a contractor will perform the work stipulated in the construction contract. Should the contractor default, the bond might require that the surety substitute the contractor and complete the work. If it is an indemnity bond, the surety will be mandated to reimburse the obligee for damages. Labour and Material Bonds This bond ensures that, should suppliers and subcontractors not be paid for the labour and materials provided to a contractor, the surety will pay them according to the terms of the subcontracts or purchase orders. Many different surety bonds exist beyond this list. At EQUA, we have the expertise to help you navigate these risk management products and find the surety bond that you need for your next project. Email email@example.com to get started today.