A contract guaranteeing the performance of a specific obligation. Simply put, it is a three-party agreement under
which one party, the surety company, answers to a second party, the owner, creditor or “obligee,” for a third party’s
debts, default or nonperformance. Contractors are often required to purchase surety bonds if they are working on
public projects. The surety company becomes responsible for carrying out the work or paying for the loss up to the
bond “penalty” if the contractor fails to perform.