Bondage

Question 1

What is a Construction Surety Bond?

Answer 1

A construction surety bond is a three party instrument under which the Surety joins with the contractor to guarantee to the owner the contractor will comply with the terms and conditions of the contract.

Question 2

What are the three parties in a Bonding relationship?

Answer 2

• Obligee (Owner)
• Principal (Contractor)
• Surety (Bonding Company)

Question 3

What is the Principal’s role in Bonding?

Answer 3

The Principal (Contractor) furnishes (pays for) the bond

Question 4

What is the Obligee’s role in Bonding?

Answer 4

the guarantee promised by the bond is made to the owner (obligee)

Question 5

What is the Surety’s role in Bonding?

Answer 5

• Financial Institution Possesing great wealth and stability
• furnishes (supplies) the guarantee that the bond promises
• guarantee is promise that contractor will comply with terms and conditions

Question 6

surety bond terms

Answer 6

• garuntee
• penal sum
• premium
• indemnitor

Question 7

What is a Guarantee?

Answer 7

The Surety will provide payment in case the performance of the Contractor causes loss to owner

Question 8

What is a Penal Sum?

Answer 8

The upper limit of the Surety’s potential financial liability (money owed) to the Owner

Question 9

What is a Premium?

Answer 9

The fee that the Principal (Contractor) pays to the Surety in exchange for providing the guarantee to the Obligee

Question 10

What is an Indemnitor?

Answer 10

A person or entity who promises to pay the Surety back for any cost that the Surety incurs if called to make good the guarantee

Question 11

What are the 3 types of Bonds?

Answer 11

• Bid Bond
• Performance Bond
• Labour & Material Payment Bond

Question 12

What is a Bid Bond?

Answer 12

An assurance that the bidding contractor who is awarded the contract will accept and sign it, and will furnish all insurance policies and additional surety bonds required by the bid documents.

Question 13

What amount is the Bid Bond % in Canada?

Answer 13

Typically 10% of Bid Price.

Question 14

What is “Consent of Surety”?

Answer 14

A two party agreement where if the Contractor enters the contract, the Surety will provide the performance and labour and material bond

Question 15

What is a Performance Bond?

Answer 15

An Assurance provided to Owners that once they have awarded the contract, the Contractor will perform according to the contract’s terms.

Question 16

What is the typical amount of the Performance Bond in Canada?

Answer 16

50% of the Contract

Question 17

Who guarantees the Performance Bond?

Answer 17

The Surety promises to fulfill the Contractor’s obligations to perform the contract made with the Owner if the Contractor is unwilling or unable to perform.

Question 18

What and how much is the Labour and Material Payment Bond?

Answer 18

A bond (guaranteed by the Surety) to private owners who want to avoid having to sell property to satisfy liens or legal claims filed by subcontractors or suppliers.
Usually 50% of the Contract Price

Question 19

labour and material bond garuntee

Answer 19

the garuntee of a labor and material bond is the suretys promise that it will pay claimants if the contractor is unable or refuses to pay them

Question 20

What is an Indemnity Agreement?

Answer 20

The separate contract between the Surety and the Contractor which outlines their price and guarantee.
The owner never sees this contract directly.

the indemnity agreement:
- specifies that the surety will provide the required garuntee to the owner
- will provide that the contractor and all other named indemnitors who may be a party to the agreement will pay the surety back for any losses that the surety incurs in making good the garuntee

Question 21

How much is a Bid Bond Premium?

Answer 21

$750+ per year