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Contracts & Legal

Surety

In Plain English

The bonding company that guarantees a contractor will fulfill their obligations and will pay or complete the work if they default.

Definition

A surety is a company, typically an insurance company, that issues surety bonds guaranteeing that a contractor will fulfill its contractual and legal obligations. If the contractor defaults, the surety is obligated to complete the project or pay damages up to the bond amount. Surety companies evaluate contractor qualifications carefully before issuing bonds.

Why It Matters in Bidding

A contractor's bonding capacity often determines which projects it can even bid, since public and large private owners require performance and payment bonds before award. The surety's prequalification of a contractor's financials and track record effectively gates the bid, and bond premium is a real line item that must be carried in markup or general conditions.

Example

Before bidding a $4M public school project, a GC confirms with its surety that the job fits within its single-project and aggregate bonding limits, then carries the bond premium as a percentage of contract value in the bid.

Related Terms

Bid BondPerformance BondPayment BondConsent of Surety

Frequently Asked Questions

Insurance protects the policyholder against its own losses, with premiums priced to cover expected claims. A surety is a three-party guarantee in which the surety expects no losses and can recover from the contractor after paying a claim. Sureties underwrite the contractor's ability to perform, not just risk transfer.
Sureties evaluate the three Cs: capital, capacity, and character. They review audited financials, working capital, credit, completed-project history, current backlog, project management depth, and continuity plans. Strong, consistent results raise both single-project and aggregate bonding limits, expanding the range of work a contractor can pursue.
The contractor pays the bond premium, then passes it through in the bid, usually as a percentage of contract value carried in general conditions or markup. On public work the cost is effectively borne by the owner since it is built into the contract price the owner accepts at award.

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