The General Indemnity Agreement
The General Indemnity Agreement is the reason a surety bond is credit rather than insurance.
It is usually four to eight pages, it arrives in a stack of closing paperwork, and it is the single most consequential document in the entire relationship. Contractors routinely sign it without reading it, and then are astonished years later to discover that their house is behind their company's contract performance.
Being astonished later is avoidable. Sign it — you almost certainly have to — but sign it knowing what it says.
Get your attorney to read it. Not your CPA, not your producer. An attorney, ideally one who does construction work. This is a two-hour review that can matter more than any other two hours of professional fees you will spend.
What it actually says
1. Indemnity
The core promise: if the surety pays anything out because of a bond it issued on your behalf, you pay the surety back.
"Anything" is broader than most people assume. A typical GIA covers:
- Losses paid on claims
- Investigation costs
- Attorneys' fees and consultants' fees
- Costs of enforcing the GIA itself
- Interest
So a $200,000 performance bond claim that the surety investigates, defends, and ultimately settles for $140,000 can easily produce a $210,000 indemnity demand once fees are added.
The surety's obligation runs to the obligee. Your obligation runs to the surety. The bond you paid for protects the owner. It has never protected you.
2. Who signs
Typically:
- The operating company
- Every affiliated or subsidiary company under common ownership
- Every owner individually, usually anyone with 10% or more
- Every owner's spouse
- Sometimes the trusts holding owner assets
And the obligations are usually joint and several. That phrase means the surety can collect the entire amount from any one indemnitor and leave that person to chase the others for contribution. If there are four owners and only one has liquid assets, that one pays.
Why spouses. In community property states, spousal signature is what reaches community assets. Even in other states, sureties want the signature so that assets cannot simply be moved to the non-signing spouse. It is standard. It is also the item that causes the most difficult conversations at home, which is a reason to have that conversation before the document lands rather than at the kitchen table with a pen in hand.
Why the trusts. If the owners' assets sit in a revocable trust, the trust is usually asked to indemnify too — otherwise the personal guarantee reaches very little.
3. Collateral on demand
This is the clause to understand best.
Most GIAs let the surety demand collateral — cash or a letter of credit — as soon as it establishes a reserve on a claim. Not when it pays. Not when liability is determined. When it decides internally that a claim might cost money.
That means a claim you believe is meritless can still produce a demand for cash you have to post while you fight it. Courts in most jurisdictions enforce these clauses, and some will issue an injunction compelling the deposit.
This is the mechanism that most often turns a manageable dispute into a liquidity crisis. A $500,000 collateral demand arriving in a month when you also have payroll and a slow-paying owner is how otherwise healthy contractors get into trouble.
4. Assignment
You typically assign to the surety, effective on default:
- Your rights under the bonded contracts, including the right to receive payment
- Your materials, plant and equipment at the job site
- Your rights against subs and suppliers
- Sometimes your books and records
This lets the surety step in and finish work without waiting for a court. It is what makes a takeover practical.
5. Right to settle
The surety generally reserves the right to settle any claim at its sole discretion — and you indemnify the settlement whether or not you agreed with it.
This is genuinely one-sided, and it is nearly universal. The practical answer is not to fight the clause but to make sure the surety hears your side early and in writing. A surety with your documentation in hand settles differently from one that only has the claimant's version.
6. Access to books and records
The surety can examine your books at any time. In practice this is rarely exercised until something is wrong, at which point it is exercised immediately.
7. Termination
Here is the part almost nobody expects: the GIA does not end when you stop using the surety.
Termination usually requires written notice, and even then it applies only to bonds issued after the notice takes effect. Every bond already outstanding — plus its warranty period, plus the statute of limitations tail — remains covered.
People sell their companies, retire, or move to a new surety and never formally terminate the old GIA. Bonds issued years later, by people they no longer control, can still reach them. If you exit a business you were an indemnitor for, terminate in writing, get written acknowledgement, and keep it.
What is negotiable
Less than you would like, but not nothing. Sureties are more flexible for accounts with leverage — good financials, long clean history, a producer willing to push.
| Item | Realistic? | Notes |
|---|---|---|
| Removing personal indemnity entirely | Rare | Only very large, very strong contractors. If offered, it is a meaningful concession. |
| Removing spousal indemnity | Sometimes | More achievable in non-community-property states, and for owners with small stakes. |
| Releasing a minority owner | Often | A 10% owner with no operational role is a reasonable ask. |
| Releasing an inactive affiliate | Often | A dormant entity should not be dragged in. |
| Capping the collateral demand | Sometimes | Or requiring the reserve to be reasonable and documented. Worth asking. |
| Notice before collateral demand | Sometimes | Even 10 days of notice is useful. |
| A release date on individual indemnity | Rare | Tied to sustained financial performance. Ask; expect no. |
| Narrowing the definition of affiliates | Often | Especially if you have unrelated ventures you do not want swept in. |
The best time to negotiate is at the start of the relationship, when the surety wants your account and before any bonds are outstanding. Once you have $15M of work bonded, your leverage on the indemnity document is essentially zero.
Getting out
Release of an individual indemnitor. Usually requires the surety's written consent, and sureties are reluctant while bonds are outstanding. Achievable when: the person has genuinely left the business, their equity is gone, and the remaining indemnitors are strong enough on their own.
Termination of the whole agreement. Written notice per the GIA's own terms, which is prospective only. Existing bonds and their tails survive.
On a sale of the business. This is where it goes wrong most often. Sellers assume the GIA goes with the company. It does not — it is a personal obligation. If you sell, you need:
- Written termination of the GIA as to you
- Written confirmation from the surety of which outstanding bonds you remain exposed on
- Indemnity from the buyer covering that remaining exposure
- Ideally, the buyer's surety replacing the bonds entirely
Put all four in the purchase agreement. Discovering the problem at closing means discovering it too late.
Living with it
Keep a signed copy. A surprising number of contractors cannot produce theirs.
Know who signed. Every entity, every individual. Keep the list current — new owners need to be added, departed owners need to be released.
Update it when ownership changes. Both directions. A new 20% owner who has not signed is something the surety will notice at the worst possible moment.
Do not treat a claim as routine. The moment a claim is filed, the GIA becomes live: collateral demands, records access, settlement authority. Call your producer and your attorney the same day. See when a bond claim happens.
Review it every few years. As your financials strengthen, ask your producer whether any of the concessions above have become achievable. The answer is sometimes yes, and nobody will offer it unprompted.
Not legal advice. GIA terms vary between sureties and are enforced differently across jurisdictions. Have a construction attorney review yours before you sign it.
Next: Surety Submission Checklist — everything the surety needs, with the GIA in its correct place at the end of the process, not the beginning.