Surety Bonds

Surety bonds offer assurance that the contractor is capable of completing the contract on time, within budget, and according to specifications. Specifying bonds not only reduces the likelihood of default, but with a surety bond, the owner has the peace of mind that a sound risk transfer mechanism is in place. The burden of construction risk is shifted from the owner to a surety company.

Since 1893, the U.S. Government has required contractors on federal public works contracts to obtain surety bonds to guarantee they will perform such contracts and pay certain subcontractors and suppliers. Owners of private construction also manage risk by requiring surety bonds.

In Hong Kong, surety bonds are commonly found in construction agreements in which the owners are government agents, quasi government organizations, and large developers. It is also common for main contractors to demand bonds from their subcontractors.