Chapter 5 – Surety Bonds

Question 1

Surety

Answer 1

the state of being sure, certain and secure

Question 2

Suretyship

Answer 2

guarantee of performance, eliminate risk to the person whom the promise of performance is made

Question 3

Fidelity Bonds

Answer 3

Protect the dishonest acts of employees

Question 4

Surety Bonds

Answer 4

undertaking by one party (the surety) to become accountable to another party (the oblige) for the performance of an obligation or undertaking by
a third party (the principal).

Question 5

Three C’s form the basis of credit appraisal

Answer 5

Character
Capacity
Capital

Question 6

Benefits to the Principals (third party)

Answer 6

added confidence gained from the fact that the

surety is satisfied in their ability to carry out the required work

Question 7

Benefits to the Obligee (accountable party)

Answer 7

such guarantees provide them with the confidence needed to undertake various projects

Question 8

Principal

Answer 8

the person primarily liable

Question 9

Obligee

Answer 9

the party to whom someone else is obligated under a contract

Question 10

Surety

Answer 10

one who undertakes to pay money or to do an y other act in event that his (the) principal fails therein

Question 11

Statutory Bonds

Answer 11

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

Question 12

Non-Statutory Bonds

Answer 12

not required by law but flow from the contract or

agreement between the parties

Question 13

Bond Limit (Penalty)

Answer 13

the amount of credit given to the principal by the surety

Question 14

Contract Bonds

Answer 14

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

Question 15

Bid Bond

Answer 15

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

Question 16

Performance Bond

Answer 16

grantees the actual performance of the contract in accordance with its specified terms and conditions.

Question 17

Labour & Material Payment Bond

Answer 17

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

Question 18

Maintenance Bond

Answer 18

Separate maintenance bond is required if the

warranty period is beyond the standard one-year term

Question 19

Working Capital

Answer 19

the amounts of funds available, this is determined by subtracting current liabilities from current assets

Question 20

Net Worth

Answer 20

establishing the amount of money remaining after all assets have been liquidated and all liabilities cleared

Question 21

Profitability

Answer 21

Analysis of working capital and net worth will reveal the profitability of the contractor, contractor will attempt to improve the picture by injecting other assets into the company.

Question 22

Percentage of completion method

Answer 22

Preferred accounting method for work in progress, earning from the work completed are calculated as a percentage of the total contract price

Question 23

Compliance Guarantees

Answer 23

basic grantee that principals will comply with those laws that affect them

Question 24

Financial Guarantees

Answer 24

Grant the licence or permit against monetary damages resulting from the failure of licensees to comply with statutes, regulations, ordinances or codes which
control their activities.

Question 25

Plaintiffs’ and Defendants’ Bonds

Answer 25

guarantees the defendant (obligee) that the plaintiff (principal) will pay any damages, including court costs

Question 26

Attachment Bond

Answer 26

Guarantees that, if the court decides against the plaintiff, the defendant will be paid any damages as the result of having such property attached.

Question 27

Release of Attachment Bond

Answer 27

Can be released to the defendant pending the final outcome of the court’s decision

Question 28

Injunction Bond

Answer 28

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

Question 29

Appeal Bond

Answer 29

Guarantees payment of all court costs on the appeal