What Is a Surety Bond?\n\nA surety bond is a three-party instrument:\n- Principal — the contractor\n- Obligee — the owner/project owner\n- Surety — the bonding company\n\nUnlike insurance, the contractor repays the surety for any loss. Good books (job costing + WIP) directly raise your bonding capacity.

Going Deeper (Intermediate)

A surety bond is a three-party agreement: the principal (you, the contractor), the obligee (the owner), and the surety (the bonding company). Unlike insurance (a two-party risk transfer), a bond is a guarantee that you'll perform — and if you default and the surety pays, the surety comes after you to recover. A bond is closer to credit than to insurance.

Advanced / Pro-Level

Sureties underwrite the "Three Cs": Capital (financial strength / working capital), Capacity (can you actually do the work), and Character (reputation and track record).

Bonding capacity = a single-job limit and an aggregate limit, roughly tied to ~10× working capital.
You sign a General Indemnity Agreement (GIA) — you (and often your spouse) personally guarantee the bond.
Build capacity with CPA-reviewed financials, a clean WIP, and growing working capital. Bonding capacity is what unlocks bigger and public work, so treat your financials as a sales tool.

Practice Challenge

Your surety pays a $200k claim when you default on a bonded job. Are you off the hook? (Answer: No — unlike insurance, you signed an indemnity agreement; the surety will recover the $200k (plus costs) from you personally. A bond guarantees the owner gets performance, not that you avoid the loss.)

In Practice

A contractor assumes a bond works like insurance — until the surety pays a claim and comes after them to repay it. A bond is three-party, and the contractor ultimately covers the loss.

Common Mistakes to Avoid

Thinking a surety bond is insurance
Not realizing you repay the surety
Weak books that cap your bonding capacity

Takeaway: A surety bond is three-party, and you repay the surety — good books raise your bonding capacity.