What is a Bond?

The 3 Parties to a Bond

1. Obligee [Revenue, Local Authority, EPA]

• Surety obligated to the Obligee
• The obligation is laid out in the terms of the bond

2. Surety [Bond Provider] 

• Surety provides Credit for Principal or goes guarantor for them
• Principal pays surety for this service
• Counter-Indemnity Agreement (This indemnifies the Surety for everything)

3. Principal [Contractor]

• The Principal contracts to fulfill an obligation to the Obligee
• A provision of the contract requires the Principal to provide a bond
• The mirror requirement is for the Obligee to pay the Principal for works done

The difference between a Surety Bond and Insurance

Surety Bond

• A Surety bond is a contract among at least three parties
• Protects the Obligee interests
• The contract guarantees that the second party will complete an obligation to a third party known as the obligee
• If the obligation is not met, the third party can recover its losses from that bond
• Premium paid is for the guarantee that the principal fulfills their obligation
• Bonds are a form of credit so the Principal is ultimately responsible to pay any claim or call on the bond


• It is a two-party contract between the insured and the insurance company • Protects the insured against a risk, as insurance is a form of risk management
• The insurance policy assumes a guaranteed promise that the insured will be compensated by the insurance company in the case of a covered loss
• Premium paid is designed to cover potential losses that may occur
• When a claim is paid an insurance company does not usually expect to be paid back