Companies doing commercial jobs that require specific performance usually need some type of bonding before a contract will be awarded. Bonding is always required for public works for federal, state and local jobs. Though the bonding process may seem a bit intimidating at first, it is really only a type of credit in which the insurer guarantees a company will complete work according to the contract performance requirements. Bonds are issued by surety or bonding companies to all sizes of businesses from the sole proprietor to the large corporation, and can be instrumental in business growth by expanding bid opportunities.

In essence, a bond is an extension of credit that says: if your company does not fulfill the contract obligations, the bonding company will pay financial compensation to the company issuing the contract. There are different types of bonds: bid bonds, supply bonds and license bonds. However, the most common bonds issued are general contractor and subcontractor surety bonds and subcontractor bonds. A surety bond is a written agreement that says the surety (bonding company) will provide for monetary compensation to the contract issuer should the bonded company (general contractor) fail to perform certain acts as named in the bond and within the required time period. The subcontract bond is the same type of bond, but it bonds subcontractors hired by a general contractor. The bond insures that the prime contractor (Tier 1 supplier) will be compensated should the subcontractor (Tier 2 supplier) fail to perform as agreed.