Surety bonds are necessary for consumer protection.  They safeguard the consumer from breach of contract, payment of certain items as well as any other state statue written into the bond. Without surety bonds the only other option for the client would be to sue them. If a claim that turns out to be true the surety company will reimburse the consumer/obligee for the claim.  Afterwards the surety will then try to collect the money owed by the principal since the principal indemnified the surety company.

Let’s say you hired a contractor to remodel your kitchen; you gave the contractor $1,000 to buy a sink, dishwasher as well as other supplies and materials. A week goes by and your contractor still has not delivered the supplies or materials. You try to get a hold of them but their numbers are no longer in service. So what do you do now? Luckily you hired a licensed and bonded contractor. One of the advantages of dealing with a bonded contractor is if the above example happens you can place a claim on their surety bond and recoup your loses up to the bond amount.

What do you do if you need a contractor to construct a commercial building and the state bonding requirements would not cover your losses if a claim occurred? Since the state bond amounts are in the $10,000 to $25,000 range depending on which state you live in.  If you are contracting a large commercial building you can require the contractor to obtain a payment and performance bond naming you as the obligee. By doing this you and your assets will be protected.

Surety bonds  help weed out fly by night companies since their assets are on the line. Without surety bonds the majority of consumers would be open and subject to fraud without any monetary recourse.