Bondage Flashcards
What is a Construction Surety Bond?
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.
What are the three parties in a Bonding relationship?
- Obligee (Owner)
- Principal (Contractor)
- Surety (Bonding Company)
What is the Principal’s role in Bonding?
The Principal (Contractor) furnishes (pays for) the bond
What is the Obligee’s role in Bonding?
the guarantee promised by the bond is made to the owner (obligee)
What is the Surety’s role in Bonding?
- 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
surety bond terms
- garuntee
- penal sum
- premium
- indemnitor
What is a Guarantee?
The Surety will provide payment in case the performance of the Contractor causes loss to owner
What is a Penal Sum?
The upper limit of the Surety’s potential financial liability (money owed) to the Owner
What is a Premium?
The fee that the Principal (Contractor) pays to the Surety in exchange for providing the guarantee to the Obligee
What is an Indemnitor?
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
What are the 3 types of Bonds?
- Bid Bond
- Performance Bond
- Labour & Material Payment Bond
What is a Bid Bond?
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.
What amount is the Bid Bond % in Canada?
Typically 10% of Bid Price.
What is “Consent of Surety”?
A two party agreement where if the Contractor enters the contract, the Surety will provide the performance and labour and material bond
What is a Performance Bond?
An Assurance provided to Owners that once they have awarded the contract, the Contractor will perform according to the contract’s terms.
What is the typical amount of the Performance Bond in Canada?
50% of the Contract
Who guarantees the Performance Bond?
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.
What and how much is the Labour and Material Payment Bond?
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
labour and material bond garuntee
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
What is an Indemnity Agreement?
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
How much is a Bid Bond Premium?
$750+ per year
