by 
The Curious Bag
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Contractor bonding is the process by which a construction bond contract is formed. Contractor bonding is part of the surety industry in which a third party will act as a guarantor that a given condition will be completed as agreed.
Underwriting
Surety companies engage in a process known as underwriting when they determine how much to charge and whether to act as a surety for a given contractor. They will look into a contractor's experience, finances and credit history, among other factors, to determine whether to act as a surety for a given contractor on a given project.
Performance Bonds
A performance bond is a type of contract bond in which the condition that is guaranteed is the completion of a project as agreed on a contract.
Subdivision Bonds
A subdivision bond is a type of surety arrangement in which a landowner guarantees to make certain public improvements.
Supply Bond
A supply bond is a type of contractor bond in which the guarantee is that supplies be provided as contracted.
Purpose
The purpose of contractor bonding is to give credibility to the contractor and act as a type of insurance for the person hiring the contractor. Surety companies can make money if they have good underwriting standards.
Source:
Surety Companies: What They Are & How to Find Out About Them
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