Bonding Flashcards

1
Q

What is a Construction Surety Bond

A
  • 3 party agreement
  • Surety joins w/ contractor to gurantee the owner, that the contractor will comply w/ terms and conditions of the contract
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2
Q

What is the difference between insurance and bonding?

A

Insurnace
- Two party agreement
- Insurance liability is direct
- Premium calculated based on calculated loss
- Cancelable by either party

Bonding
- Three party agreement
- Surety’s liability is secondary
- Premium for credit facility
- Remains until all obiligations are fulfilled

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3
Q

What are the 3 parties in a bonding relationship?

A
  • Obligee (owner): receive gurantee promised by the bond
  • Principle (contractor): furnish bond
  • Surety (financial institute): provide guarantee promised by the bond
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4
Q

What is a guarantee?

A

Surety underwritting principle’s performance

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5
Q

What is a penal sum?

A

the upper limit of surety’s potential financial liability to owner

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6
Q

What is a premium?

A

Fee that contractor pays to surety for providing gurantee to owner

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7
Q

What is an indemnitor?

A

Individual or entity who promises to indemnify for any losses to surety

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8
Q

What are the 3 types of Bond?

A
  • Bid bond
  • Performance bond
  • Labour & material payment bond
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9
Q

What is bid bond?

A
  • Assurance for owner that make contractor accepts and signs the contact at the bid price
  • Canada: Bid bond = 10% of bid price
  • US: Bid bond = 5~20% of bid price
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10
Q

What is “Consent of Surety”

A
  • 2 party agreement
  • When contractor enters the contract, surety will provide performance/labour and material bond
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11
Q

What is the performance bond?

A
  • Assurance for owner that makes contractor perform IAW contract term
  • Canada: 50% of contract
  • US: 50~100% of contract
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12
Q

Who guarantee the performance bond?

A
  • Surety will make contractor to fullfill their obligations
  • If contractor unwilling/unable to perform
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13
Q

What Labour & Material Payment Bond guarantee?

A
  • If contractor refuse/unable to pay, surety will pay claimants
  • 50% fo contract price
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14
Q

What is an indemnity agreement?

A
  • Seperate agreement between contractor and surety that owner will never see (Bond = evidence)
  • It makes surety to provide guarantee to owner
  • Payback to ppl pays surety, if there’s any losses
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