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CAIB 3 > Chapter 5 > Flashcards

Chapter 5 Flashcards

1
Q

Surety

A

The state of being sure, certain, secure

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2
Q

Suretyship

A

Guaranteeing performance made by one to another

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3
Q

2 main classes of bonds issued by surety company

A

Fidelity
Surety

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4
Q

Fidelity bond

A

To ensure employers would be protected from the dishonest acts of their employees

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5
Q

Surety bond

A

Undertaking by one party (surety) to become accountable to another party (Obligee) for the performance by a third party (principal)

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6
Q

3 C’s that form the basis of credit appraisal

A

Character
Capacity
Capital

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7
Q

How are surety bonds like banks

A

Surety does not bond those who cannot perform obligations where banks don’t lend to those who don’t meet eligibility requirements

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8
Q

Three parties to a contract

A

Principal
Obligee
Surety

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9
Q

Benefit of suretyship to the principal

A

Confidence gained from fact that surety is satisfied with their abilities

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10
Q

Benefit of suretyship to obligeee

A

Confidence needed to undertake various projects

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11
Q

Principal

A

The person primarily liable

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12
Q

Obligee

A

The party to whom someone else is obligated under a contract

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13
Q

Surety

A

One who undertakes to pay money or to do any other acts in event that his (the) principal defaults.

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14
Q

3 characteristics of the guarantee made by the surety

A
  • Is a promise made to the Obligee and not the principal
  • Is a secondary obligation arising in on the default of the principal
  • Surety’s duty to pay arises upon default of principal
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15
Q

Statutory bond

A

One that is required by a municipal ordinance, or federal or provincial regulation or statute.

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16
Q

Non statutory bond

A

Not required by law but flow from the contract agreement between the parties

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17
Q

Two methods for surety to collect amounts owed by the principal

A

-Assignment to surety of obligee’s rights
-Right of subrogation

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18
Q

No losses expected

A

Surety expects not losses to occur

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19
Q

Bond limit (penalty)

A

Reflects amount of credit given to principal by surety

20
Q

Bond premium

A

Sum charged for pre-qualification and other company expenses

21
Q

Contract bond

A

Intent is to guarantee the fulfillment of certain obligations required under public and private contracts

22
Q

4 categories of bonds

A

Contract bonds
Judicial bonds
License and permit bonds
Miscellaneous bonds

23
Q

Bid bond

A

Used in large contracts, calling for tenders or bids from interested parties

24
Q

Surety’s consent

A

Assure owner that if the principal is the successful bidder, surety will issue other bonds required to ensure performance of the contract

25
Q

Reasons for default under a bid bond

A

Error in judgment
Mistakes in Arithmetic

26
Q

Supply bond

A

Agreement to furnish & deliver supplies at an agreed price

27
Q

Performance bond

A

Guarantees performance of contract with terms and conditions and any fault work will be corrected and defective materials replaced within a 1 yr period after completion.

28
Q

Labour & material payment bond

A

Guarantees that the sub-trades and suppliers will be paid for the work and materials that enter into the project.

29
Q

Maintenance bond

A

Guarantee given to Obligee that the principal will fulfil the warranty obligations stated in the contract.

30
Q

3 risks faced by owners when undertaking a construction project without protection bond

A
  1. Refusal or inability of best bidder to enter contract
  2. Failure of contractor to complete project at contract
  3. Inability of contractor to pay subcontractors and suppliers
31
Q

Two methods of tender deposits acceptable when tenders at called

A

Bid bond
Certified cheque

32
Q

5 causes of involuntary default

A

Insolvency
Imcompetence
Banks refusal to grant credit extension
Delays
Failure of subcontractor when no bond is in place

33
Q

License and permit bond

A

Required as a requisite to apply for any licenses or permits

34
Q

Judicial bond

A

Prescribed by statue and depending on matter, may be filed with probate court or court of equity

35
Q

Plaintiffs and defendants bonds

A

In the event the plaintiffs action should fail, the bond guarantees the defendant(Obligee) that the plaintiff (principal) will pay any damages including court costs and vice versa

36
Q

Attachment bond

A

If court decides against the plaintiff, defendant will be paid damages as the result of having such property attached

37
Q

Release of attachment bond

A

Guarantees that if the matter is decided in the plaintiffs favour, the defendant will return property and pay any damages and court costs

38
Q

Injunction bond

A

To ensure that the defendant in an action performs or refrains from performing som act or function

39
Q

Appeal bond

A

Guarantees the payment of all court costs on the appeal.

40
Q

Fiduciary bond

A

Requires the fiduciary be bonded for the faithful performance of those duties as prescribed by law.

41
Q

Types of miscellaneous bonds

A

-Customs and excise bonds
-Lost document bond
-Consignment bond
-Utility payment bond
-Land restoration bond

42
Q

Net worth calculation

A

Networth = assets - liabilities

43
Q

Profitability

A

Analysis of working capital and net-worth

44
Q

Working capital

A

Amount of funds available to pay continuing business operating expenses

45
Q

Percentage of completion method

A

Preferred accounting method- earnings from work completed are calculated as a % of total contract price

46
Q

2 types of judicial bonds

A

Court bonds
Fiduciary bonds

47
Q

Financial guarantees

A

Grant the license or permit against monetary damages resulting from the failure of licensee to comply with statutes regulations, ordinances or code switch control their activities

CAIB 3 (6 decks)

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