Contract surety bonds are three-party instruments by which the surety guarantees or promises the obligee (owner) the successful performance of a contract by the contractor (principal).

Bid bonds are basic instruments of prequalification. The surety has examined the contractor and is satisfied that the contractor can perform the project they are bidding. Bid bonds are written in some percentage of the bid amount, usually 5% to 10%. If the contractor is the low bidder, the bid bond guarantees that the contractor can provide a performance and payment bond. If not, the contractor will have to pay the owner the percentage mentioned above.

Performance and Payment bonds states that the contractor will build the project that was contracted for according to the plans and specifications. If the contractor fails, the owner has the right to make a claim against the bond to secure completion of the project. Payment bond guarantees that the labor and material suppliers on the project will be paid. Performance and Payments bonds have a one year maintenance guarantee included.

Maintenance bond guarantees that the principal will maintain the project after completion and that it will be free of defective workmanship and materials.