A surety bond is an agreement between three parties: the principal, surety, and obligee. The agreement legally binds together a principal who needs the bond, an obligee who requires the bond and a surety company that sells the bond. The bond guarantees the principal will act in accordance with certain laws. If the principal fails to perform in this manner, the bond will cover resulting damages or losses.
Surety bonds protect consumers and government entities from fraud and malpractice.