A surety bond involves three parties, a surety, a principal (often a contractor) and an obligee (often a project owner). The surety guarantees under seal that the principal will carry out his obligations or alternatively compensate the obligee for losses due to the contractor’s breach. In the construction industry this is known as a performance bond. The surety has recourse against his principal (the obligor). A retention bond is required when the developer releases the amount retained for defects before the contractor has completed the defects. A pre-payment bond guarantees any advance payment for the contractor’s mobilisation. Bid bonds guarantee that the contractor’s bid or tender is made in good faith and he is capable of entering into the contract. If the contractor fails to proceed, the surety pays for the project owner’s costs in scrutinising another tender. Payment bonds guarantee payment for project labour and materials. See COURT BONDS; LOCAL AUTHORITY BONDS; GOVERNMENT BONDS.