Surety bond

A surety bond is a tripartite undertaking by which a surety, often a specialised insurer, binds itself to a beneficiary to perform or indemnify in case of default by a principal debtor. Unlike classic insurance which covers a hazard suffered by the insured, suretyship guarantees a third party's performance of an obligation, with possible recourse by the surety against the defaulting debtor. Common forms include performance bonds on construction projects, bid bonds for tenders, and customs and tax bonds. Highly developed in public procurement and construction, notably in the United States, surety differs from credit insurance by its performance-guarantee logic rather than protection against insolvency. For the underwriter, the analysis bears on the principal debtor's solvency and technical capacity, bringing the business close to credit analysis, with historically low losses but correlated to the economic cycle.

A public client can require a performance bond from a contractor: if the contractor abandons the project, the surety funds completion of the works.

surety bond, cautionnement, garantie de bonne fin, performance bond