A surety bond is a generic term to describe many types of bond. A surety bond is a three party guarantee. The three parties are:
- The principal - the primary person or business entity who will be performing a contractual obligation
- The obligee - the party who is the recipient of the obligation (usually a government entity)
- The surety - who ensures (guarantees) that the principal's obligations will be performed. Sureties are similar to (sometimes divisions of) insurance companies.
A performance bond is a surety bond issued by an insurance company to guarantee satisfactory completion or performance of a project by a contractor. These are generally three party agreements as outlined below:
- Principal - Contractor being hired to perform under a certain contractual agreement.
- Obligee - Party for whom the bond will benefit in the event of a contractual default.
- Surety - Guarantor, generally an insurance company.