In its most simple terms: you need it because the Obligee requires it. However, the reason that the Obligee wants a surety bond is that it provides protection for them as it guarantees that the Obligor/Contractor will perform according to the terms of the contract, which reduces the uncertainty of a missed deadline or other delay. Finally, for federal work, the government requires a surety bond (under the Miller Acr) and most state governments and municipalities have passed similar legislation, called Little Miller Acts.