What is it?
Surety Bonding is the provision of bonds or guarantees to protect a principal in a contract from contractor non-performance. If the contractor fails to meet their obligations or fails to complete the contract adequately, the bond money can be used to reimburse the principal for extra costs they have to incur. Surety Bonding is an essential part of many industries, such as commercial construction, civil construction & engineering process machinery supply/maintenance.
What it covers?
Bonding can be done by either an insurance company or a bank – both options give the same level of protection to the principal. However, Insurers tend to require less assets or security to support the bonds. As long as there is a good trading history and an adequate stable balance sheet, an Insurer should be able to provide a bond that does not impinge on cash reserves or assets. Common types of bonds are as follows:
- Performance bonds - protects the principal during the performance of the contract to ensure that the job is finished to a suitable standard.
- Bond in Lieu of Retentions - protects the principal after the job is completed to ensure any defects are remedied.
- Advanced Payment Bond - protects the principal if they pay a deposit to a contractor for upfront materials/costs. This ensures that the goods are supplied as agreed.
To discuss the right options for you, contact your local Insurance Advisernet Broker today.