BONDS

THE BONDING RELATIONSHIP
A Bond is a contract where one party guarantees performance by another party of an obligation or undertaking to a third party.
(a) The one whose obligation or undertaking is guaranteed is the Principal
(b) The one who guarantees that the obligation or undertaking is performed is the Surety.
(c) The one in whose favour the guarantee is given is the Beneficiary
The level of protection sought by the Employer who is the Beneficiary of the will determine the Bond Amount.

BID or TENDER BONDS
Such bonds are often required to accompany financial contract tenders.
It is a guarantee up to the value of the bond, to a prospective employer, that the contractor will honour its tender and that if successful will enter into the contract and meet any bond requirements laid down in the contract.

THE BENEFITS
Bonds issued by insurance Companies do not affect Bank borrowing levels whereas those issued by the Banks commonly do.

Bonds issued by Surety Companies give the Employer a clear underwritten second opinion that the chosen contractor can and should successfully complete the project coupled with the financial protection provided up to the amount.

Bond issued by Surety companies does not reduce a contractor’s working capital or borrowing abilities.
When issued by a Bank, bonds restrict the future borrowing capacity of a contractor, which can have a dramatic effect on its survival should that contractor need additional financial support from its bank.
To conserve bank lines of credit for working capital purposes bonds should be issued by Insurance Companies whenever this is acceptable too the Employer/Beneficiary.

TYPES OF BONDS
A Bond is a contract where one party guarantees performance by another party of an obligation or under taking to a third party.

a) Bid Bond – It is a guarantee, up to the value of the bond, to a prospective employer that the contractor will honour its tender and that if successful will enter into the contract and meet any bond requirement laid down in the contract, i.e. a two fold guarantee for the employer.

(b) Performance Bond – It is a guarantee, up to the value of the bond to protect the employer against loss or damage sustained by the failure of the contractor to perform his contractual obligation. In addition, it is the security which the contractor is required to provide in order to obtain the release of his bid bond.

(c) Advance payment Bond – It is a guarantee up to the value of the bond, to safeguard the employer, where the contractor has received monies in advance of commencement of work, e.g., to purchase materials to be used in the contract.

(d) Customs bond – It is a bond required by customs to guarantee that any required duty will be paid if the owner of the goods, our client fails to do so. Instances when this may occur are if the goods are lost during transit, for example whilst being transferred from one vessel to another.