A bond is issued when a first party (obligee) calls upon a second party (principal) to perform duties in contract form, a surety bond is issued by a third party (surety), guaranteeing that the second party will fulfill an obligation or series of obligations to the first party. In the event that the obligations are not met, the first party will recover its losses via the bond.
Generally, surety bonds are classified as contract, commercial, or fidelity, as follows:
Contract bond, used very frequently used in the construction industry is a guarantee from a Surety to a project's owner (Obligee) that a general contractor (Principal) will adhere to the provisions of the terms of the contract. Examples of these types of bonds include bid bonds (guarantee that a contractor will enter into a contract), payment bond (guarantee that a contractor will pay for services and materials), performance bond (guarantee that a contractor will perform the work as specified by the owner), and maintenance bond (guarantee that a contractor will provide facility repair and upkeep for a specified period of time.)
Commercial, license, or permit bond, usually required by law, are a guarantee from a Surety to a government and its constituents (Obligee) that a company (Principal) will adhere to the provisions of applicable codes and laws that apply to particular activities. The company could be a contractor, a health spa, title company, notary public, etc
Fidelity bonds are really insurance policies that protect an employer from the dishonest act of an employee.