Why might a project owner require a surety bond from a contractor?

A project owner might require a surety bond from a contractor primarily to ensure financial security and guarantee performance. A surety bond serves as a contract among three parties: the principal (the contractor), the obligee (the project owner), and the surety (the company that issues the bond). By obtaining the bond, the contractor assures the project owner that they will complete the project as per the contract terms. If the contractor fails to fulfill their obligations—whether it’s due to non-completion, adherence to specifications, or other issues—the surety bond provides the project owner with financial recourse. Essentially, it helps to mitigate the risk for the project owner, ensuring that they have financial backing to rely on should problems arise.

While timely completion is certainly an important aspect of a project and is often related to the obligations guaranteed by a surety bond, the bond itself fundamentally addresses the financial security and performance guarantee, which is broader in scope. Insurance coverage for equipment is a separate consideration and does not directly relate to the surety bond's purpose. Lastly, a surety bond typically does not reduce expenses for a contractor, as acquiring such a bond may involve fees and underwriting processes that could increase their overall costs.