A surety bond is a three-party agreement that guarantees the performance or obligations of one party, known as the principal, to another party, known as the obligee. The third party, called the surety, provides a financial guarantee that the principal will fulfill their obligations, such as completing a project or adhering to regulations. If the principal fails to meet these obligations, the surety is responsible for compensating the obligee. Surety bonds are commonly used in various industries, including construction, where they ensure that contractors complete their work as promised. They help protect the interests of the obligee and provide a level of assurance that the principal will act responsibly.