I have run into bond requirements on commercial work quite a bit. Usually, you can't pull a permit without producing a bond. I have never seen a bond put up for liability purposes.
As stated earlier, Insurance is for liability reasons. The bond guarantees you are going to finish the project in accordance with the municipalities requirements. I think is basically to keep "fly by night" contractors from wrecking a building and leaving the debris on site. This way the municipality has has a sufficient guarantee in the form of a bond to ensure the work will be completed.