Surety Bond

• A surety bond is a guarantee used when hiring a contractor to complete a large project. The principal is required to buy the bond, which sets out all the tasks that the principal must accomplish in order to be paid. The bond also ensures the principal pays back the total amount of the bond if the work is not completed according to the contract. The owner, also known as the obligee, typically requires a surety bond instead of a letter of credit or similar instrument.
  
  

Owner

• The owner is the party who controls the terms of the bond itself. This party is typically referred to as the owner because they tend to own the land or building on which the work is being done. The owner neither contacts a surety firm to create the bond, nor has labor to complete detailed in the bond. The specifics of the surety bond apply to the principal. The owner's obligations deal with payment, deadlines, and changes to the bond.
  
  

Payment

• The owner's primary obligation is payment. If the work is completed on time according to the contract, the owner must pay the amount listed in the bond. Otherwise, the principal can take the owner to court and demand payment.
  
  

Timeframe

• The owner typically has a certain amount of time to examine the work and make any claims against the principal. If the owner finds that the work is not satisfactory, there is a deadline to making a claim outlined in the bond. Surety bonds also typically include a date of payment that the owner must fulfill.
  
  

Change Orders

• The owner can create a change order for the surety bond while the work is being done to alter some specific requirement or expand on a deadline or material used in the work. These change orders are very important: the owner cannot simply demand extra work or a new timeframe. The change must be made officially, or it has no bearing on the bond and the binding contract associated with it.