The short answer
A surety bond is a three-party agreement. The principal, usually a contractor or business, promises to perform an obligation. The obligee, such as a project owner or a government body, is the party protected. The surety stands behind that promise to the obligee, and expects the principal to repay it if it has to pay out. A licensed broker prepares the application and arranges the bond.
- Contractors asked for a bid, performance or payment bond on a tender
- Businesses that need a licence or permit bond to operate in a regulated trade
- Companies facing a court or a government body that asks for a bond
- Growing contractors whose projects are getting larger than their current bonding
- Owners and developers who want to understand what a bond gives them
2 licensed brokers in the network handle this. In Alberta, Canada, a request for surety bonds can be offered to up to three of them, chosen because they are licensed for this line and place. They are test brokers while we are in demo.
See the brokers → Outside Alberta, Canada you can prepare and save a request today; sending opens place by place. Brokers answer with their own quotes. Broker.insure does not quote, advise or take commission.
01 / What it covers
The parts worth understanding
Bid bond
Given with a tender, it supports the promise that if the bidder wins, they will sign the contract and provide the further bonds required.
Performance bond
Supports the principal's promise to complete the contract as written. If the principal defaults, the surety investigates and decides how to resolve it, which may include arranging completion.
Payment bond
Supports the promise that subcontractors, labour and suppliers will be paid. It protects the people further down the chain.
Licence and permit bonds
Required by some authorities before a business may operate in a trade. They protect the public against the business breaking the rules of its licence.
Court and fiduciary bonds
Required in legal matters, for example when someone holds or manages property for others. The kinds and rules vary by jurisdiction.
Indemnity agreement
The principal's written promise to repay the surety for any claim. It is not a side detail; it is central to how bonding works, and often involves personal commitments from owners.
02 / Get ready
Bring this, and expect these questions
Gather
- Financial statements for the business, often reviewed or audited by an accountant
- Personal financial information for the owners, since they may be asked to stand behind the bond
- A work-in-progress schedule showing current contracts, their value and completion
- A list of completed projects of similar size and kind, with references
- The bond form, tender documents or contract that requires the bond
- Resumés of key managers and site staff
- Banking details and any line of credit the business relies on
- An explanation of past disputes, delays or losses on contracts
A broker will ask
- Which kind of bond is required, in what amount, and who is asking for it?
- Has the business been bonded before, and with how much track record?
- What is the size and status of all your current contracts?
- How is the business financed, and what does the balance sheet look like?
- Who owns the business, and who will be asked to sign the indemnity agreement?
- Have any projects finished late, over budget or in a dispute?
- How do you manage subcontractors, and do you require their bonds or insurance?
- When is the bid due, and what does the obligee expect to receive and when?
Not sure of an answer? Leave it. "Not known yet" is a fine answer, and a broker will help you fill it in.
03 / Build your request
Answer a few questions. Get your own list.
Pick what fits. Your answers shape the list beside them, and they are saved to your request as plain facts a broker can read. "Not sure yet" is always a fine answer.
04 / Three situations
See which one sounds like yours
A mid-size contractor bidding on a municipal job
The tender calls for a bid bond now and performance and payment bonds if the contractor wins. The contractor has never gone above a modest job size and has reviewed financial statements prepared by a local accountant.
First steps. Contact the broker before the bid deadline, not after. Provide recent statements and a work-in-progress schedule so the surety can look at capacity, and ask what additional information would help support the larger size.
A new home builder needing a licence bond
A province requires a bond as a condition of a builder's licence. The owner started the company two years ago, has limited credit history and is unsure what the bond protects or what he is promising.
First steps. Ask the broker to explain the indemnity agreement in plain terms and how a claim would flow back to him personally. Provide the licensing requirements so the right form and amount are used, and ask what steps could improve terms at renewal.
A project owner reviewing a contractor's bond
A school board contact received performance and payment bonds with a contract, but does not know how to tell whether they offer any real protection. A subcontractor is already asking about payment.
First steps. Read the bond form to see who the obligee is, what is covered and the notice requirements for a claim. Ask a lawyer or the contractor's broker to explain the notice steps, because bond claims often have strict conditions on timing and process.
05 / Words you will hear
The jargon, in plain words
- Principal
- The business that has taken on an obligation, such as finishing a contract, and arranges the bond to show it can be trusted to meet it.
- Obligee
- The party that requires the bond and is protected by it, usually the owner of a project or a public body awarding the work.
- Surety
- The company that issues the bond and stands behind the undertaking the principal made to the obligee. If the principal defaults, the surety may step in, then seek repayment.
- Indemnity agreement
- A signed promise to repay the surety for any loss it pays because of the bond. Owners often sign personally, which makes a bond unlike ordinary insurance.
- Bid bond
- A bond filed with a tender showing the bidder will sign the contract if it wins, and can then supply the required performance bond.
06 / Common mistakes
What trips people up
- Treating a bond as insurance for the principal, when the surety expects to be repaid after a claim.
- Waiting until after the tender closes to ask about bonding capacity.
- Signing an indemnity agreement without understanding who is personally responsible.
- Taking on projects that are far beyond the business's experience and financial strength.
- Not checking the bond form against what the obligee actually requires.
- Missing the notice or time limits that govern how a claim must be made.
Ready when you are
Turn this into one clear request.
Save it, add what you know, and choose when to send it. A licensed broker who handles surety bonds takes it from there.
07 / Questions people ask
Straight answers
What is a surety bond?
It is a written undertaking involving three parties. The principal promises to fulfil an obligation, the obligee is protected if they do not, and the surety stands behind the principal's promise. If the surety has to pay, it will look to the principal for repayment. It is a form of credit based on trust in the principal's ability to perform.
What is the difference between a surety bond and insurance?
Insurance spreads risk across many policyholders and pays a covered loss without expecting repayment. A bond protects the obligee, and the surety expects the principal to reimburse any amount paid. Because of this, a surety looks closely at the principal's finances, character and experience, much as a lender would.
What is the difference between a bid bond and a performance bond?
A bid bond comes with a tender and supports the promise to sign the contract and provide further bonds if the bid is accepted. A performance bond comes after award and supports the promise to complete the work under the contract. Each one protects the owner at a different stage of the project.
Who needs a surety bond?
Contractors are the best-known group, because public and many private owners require bonds on larger projects. Others include licensed trades, businesses required by regulators, and parties in certain court matters. Whether a bond is mandatory depends on the contract, the regulator and the province, so check the original requirement.
What does a surety look at before issuing a bond?
Commonly the business's financial strength, its track record on similar work, its management and the experience of its people, its current workload and the terms of the contract. Owners may be asked to sign personally. A broker who works with surety markets can explain what to prepare and how to present the business.
General information, not insurance advice. Broker.insure is a directory and request service: it is not an insurer and does not quote, bind or advise. Policy terms, availability and what is required where you live depend on your situation and on licensed professionals. Updated 2026-10-31.