We have all come across the term surety bond. Exactly how does it work? You are a contractor and a project owner hires you to create a footpath, to use an example. You must obtain a surety bond from a company to make sure you follow the terms stated in the contract and to assure that you complete the project. The surety, or third party will have to assume the contract if you do not complete it.
The obligee is the recipient of what you are building, i.e. the project owner. You, who are building the footpath are called the principal. The surety will guarantee that you complete the job. If you are working on a government contract you will be obligated to get a surety bond. If not, it may not be necessary. It is a type of insurance policy on the of the project owner. Naturally, it will cost you money to get one as the principal.
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