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What is a Surety Agreement?

Agreement for Surety

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A Surety Agreement is also known as a surety bond. These types of bonds are quite common in the construction industry, where you see a lot of bid bonds, performance bonds and payment bonds.

At its core, a surety agreement is a three party agreement between the surety, the Obligee and the Obligor. The surety is the company that is providing a guarantee on behalf of the Obligor. The Obligor is the company that is providing goods or services to the Obligee. The Obligee is the party that would receive money or other recompense if the Obligor is unable to perform.

A bid bond is a tri-party agreement. In this surety agreement, the surety is guaranteeing that the Obligor will accept the job that it is bidding on if it is awarded the job. Thus, the Obligee will not be left high and dry if the Obligor does not move forward with the job.

In a performance bond, the surety is guaranteeing that the Obligor will perform according to the terms of the contract. That is, the Obligor will build a building accoridng to the architect’s drawings at the timeframe specified in the contract. If not, the surety will find another company to finish the agreement.

In a payment bond, the surety is guaranteeing that the Obligor will pay its material vendors as well as any subcontractors. This assures the Obligee that the project will not be unduly delayed by a lien.

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