Understanding Surety Bonds & Its Navigating Process

Surety bonds are an essential factor in the construction business. It can be seen as an official financial tool to ensure the necessary protection of leading parties involved in a project contract. A primary purpose of a surety bond is to provide security of high-quality performance and complete project payment. 

Many contractors and dealers do not provide surety bonds. However, a project that is not primarily bonded has the potential to create detrimental risks for project owners, subcontractors, and suppliers. Navigating the bonding process is as simple as applying for a loan and the process can be smoothly carried out with some basic information like financial statements, details of bank loans, and schedules of work of the contractor. 

If you want to start a construction project, this article will provide detailed information on surety bonds and their navigating process. 

What Are Contract Surety Bonds?

In the simplest of words, contract surety bonds can be understood as a way of prequalifying a contractor or a company for a project. Establishing a strong security bond with the contractor ensures that the contractor has undergone an extensive assessment of financial stability, the capability of the organization, and the ability to complete the assigned project on time with admirable quality. 

Surety bonds are a three-party obligation; the principal, the surety, and the obligee. If a claim for the surety bond is made, the insurance companies (the surety) are responsible for ensuring the completion of a project with the quality as mentioned in the bond by the contractor (the principal), to the project owner (the obligee). 

The beginning of every project starts with a developer, the obligee. If the developer wants to start a project, they usually reach out and hire a construction company. Now, in order to ensure that each participant of the project, including the subcontractors and suppliers, is rightfully paid and the completion of the project is conducted timely, the obligee can ask the contractor for a surety bond. Then it is up to the contractor if they are willing to proceed with the project with or without a surety bond. 

How To Navigate The Process Of Bonding? 

As mentioned above, navigating the bonding process does not have to be elliptical as long as the key parties involved are equipped with the right information. The process comprises evaluating the contractor’s financial health, previous works, and operating methods. As the evaluation is conducted in the form of a thorough assessment, the surety is required to analyze a list of things, that are, 

  • Domains of experience and expertise 
  • Profit and loss statements 
  • Details of the assigned project 
  • Previous work of the organization 
  • Cash flow and income

The evaluation process also requires a set of documents for the surety company to review. One can easily navigate the bonding process with a contractor’s help by providing the documents below.

  • Meticulous personal & company information 
  • Financial statements of the previous three years, including bank loans agreements and the current year’s interim statement
  • Concrete proof of insurance
  • Schedules of ongoing and previously completed projects 
  • References from suppliers, creditors, and project owners/developers
  • Indemnity bond between the company and the project owner 


Having the documents as mentioned above ready and at your fingertips can significantly help you in navigating the process smoothly and efficiently. Although the process requires a little extra effort, it does not have to be strenuous and time-consuming. One must always focus on the essential benefits that come with a surety bond rather than the little effort it requires. The numerous benefits, like complete protection of payment and performance, outweigh the little effort required in the beginning process. 

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