Surety Bonds That Strengthen Your Contracts and Commitments
Surety Bonds provide a financial guarantee to project owners or beneficiaries that a contractor will fulfil contractual obligations. If the contractor fails to perform, the surety steps in up to the bond amount. This instrument is increasingly used as an alternative to bank guarantees, helping businesses free up working capital while still providing strong security to counterparties.
In this arrangement, three parties are involved:
- Principal/ Obligee: The project owner or beneficiary who receives the assurance.
- Contractor: The contractor who guarantees the work.
- Surety Provider: The insurer that backs the contractor’s commitment to the project.
Helps reduce reliance on bank guarantees and collateral
Enhances credibility with government and private project owners
Supports infrastructure, construction, supply and service contracts
Structured after assessing project risk and financial strength
Types of Bonds
Frequently Asked Questions
How is a surety bond different from a bank guarantee?
It’s an insurance product, often requiring lesser margin and preserving banking limits.
Who are the parties in a surety bond?
Principal (beneficiary/ obligee), Contractor and surety (insurer).
What types of contracts use surety bonds?
Infrastructure, government tenders, construction, supply, service and other performance-based contracts.
How is the bond limit decided?
Based on contract value, risk assessment and the contractor’s financial strength
Does the contractor need to reimburse the surety after a claim?
Yes, the contractor is ultimately liable to indemnify the surety for paid claims.
