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 the financial backing to ensure that the principal fulfills their commitments. If the principal fails to meet their obligations, the surety is responsible for compensating the obligee up to the bond amount. Surety bonds are commonly used in various industries, including construction, where they ensure that contractors complete projects as agreed. They can also be required for licensing purposes, helping to protect consumers and maintain industry standards.