About Suretyship

Suretyship is an integral part of the functioning of government and commerce. In many complex endeavors involving risk, a need exists to have a third party assure the performance or obligations of one party to another party. Surety companies are the “third parties” that provide such assurances in return for premium payments.

For example, private and public entities, such as corporations, universities, and federal and state governments, may require surety bonds, in the form of performance bonds and other bonds, to manage the risk on construction projects. A performance bond, a three-party agreement among the project owner, the construction contractor, and the surety company, protects the project owner from financial loss should the contractor fail to perform the construction contract in accordance with its terms and conditions.

In the United States, most surety bonds are written by corporations that typically are insurance companies, primarily because, as large financial institutions, such companies have the capital necessary to make large commitments in the form of surety bonds. These companies are highly regulated and scrutinized, through legal requirements for regular financial audits and other means, in order to conduct surety business.

Most surety companies, in turn, distribute surety bonds through a licensed surety bond producer. In the construction context, a professional surety bond producer may sell bid, payment, and performance bonds underwritten by surety companies to qualified contractors and subcontractors. The bond producer will guide the contractor or subcontractor through the surety bonding process, helping the contractor or subcontractor to establish and foster a business relationship with a surety company, and assisting the contractor or subcontractor to manage its surety capacity.  The bond producer often also acts as a key business consultant to the contractor or subcontractor, offering sound business advice and technical expertise, such as contract document review.