What is Surety?

Surety provides a promise to pay in circumstances where one contracting party fails to fulfil its contractual obligations to another. In a typical contracting situation three parties are involved: the principal, the obligee, and the surety company.

• The principal is who obtains the surety bond to guarantee a contract is fulfilled, or to comply with various legal requirements.
• The obligee is the party who requires a surety bond to protect against potential loss.
• The surety company, often an insurance company, provides the surety bond to the principal, acting as a guarantor in the event that the principal fails to fulfil its contractual obligations.

Organisations may be required to issue various performance guarantees. It’s common practice to use bank guarantees or letters of credit for this. We can replace these with an unsecured surety solution which does not tie up any corresponding funds and unlocks working capital.

An example would be where an employer on a construction project seeks a bond from the main contractor to cover the costs of replacing the main contractor in the event that they fail to fulfil their obligations under contract. They are typically called in when a contractor has defaulted or gone into insolvency.