Chapter 5 – Surety Bonds Flashcards
Surety
the state of being sure, certain and secure
Suretyship
guarantee of performance, eliminate risk to the person whom the promise of performance is made
Fidelity Bonds
Protect the dishonest acts of employees
Surety Bonds
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).
Three C’s form the basis of credit appraisal
Character
Capacity
Capital
Benefits to the Principals (third party)
added confidence gained from the fact that the
surety is satisfied in their ability to carry out the required work
Benefits to the Obligee (accountable party)
such guarantees provide them with the confidence needed to undertake various projects
Principal
the person primarily liable
Obligee
the party to whom someone else is obligated under a contract
Surety
one who undertakes to pay money or to do an y other act in event that his (the) principal fails therein
Statutory Bonds
one that is required by a municipal ordinance, or federal or provincial regulation or statute.
Non-Statutory Bonds
not required by law but flow from the contract or
agreement between the parties
Bond Limit (Penalty)
the amount of credit given to the principal by the surety
Contract Bonds
guarantee the fulfillment of certain obligations required under public and private contracts
Bid Bond
Used in large projects, calling for tenders or bids from interested parties
Performance Bond
grantees the actual performance of the contract in accordance with its specified terms and conditions.
Labour & Material Payment Bond
Guarantees that the sub trades and suppliers will be paid for the work and materials that enter into the project.
Maintenance Bond
Separate maintenance bond is required if the
warranty period is beyond the standard one-year term
Working Capital
the amounts of funds available, this is determined by subtracting current liabilities from current assets
Net Worth
establishing the amount of money remaining after all assets have been liquidated and all liabilities cleared
Profitability
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.
Percentage of completion method
Preferred accounting method for work in progress, earning from the work completed are calculated as a percentage of the total contract price
Compliance Guarantees
basic grantee that principals will comply with those laws that affect them
Financial Guarantees
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.
