What is a Surety Bond?

A surety bond is a three-party contract between a principal, a surety, and an obligee. In a construction setting, the principal would be a contractor, the surety would be the contractor's surety company and the obligee would be the party requiring that a bond be produced (such as a state, municipality, school district, etc.). The surety financially guarantees to the obligee that the principal will fulfill the contract accordingly.