Surety Bonds Flashcards
What is a construction Surety Bond?
a 3-party instrument under which the Surety joins the contractor to guarantee the owner that the contractor will comply with conditions of the contract
Difference between insurance and bonding?
2 party vs 3 party
insurance liability is direct while Surety’s liability is secondary
premium calculated based on predicted losses vs. bond premium for credit facility
insurance is cancellable by either party, while bonding remains in place until principal obligation is filled
who is the principal is a bonding structure?
Contractor
The guarantee promised by the bond is made to the owner aka _____
Obligee
Surety Bond Terms
Penal Sum: upper limit of the surety’s potential financial liability to the owner
Premium: fee that principal pays to the surety
Indemnitor: person or entity who promises to pay the surety back for any cost that the surety incurs if called to make good the guarantee
Types of Bonds
Bid Bonds, Performance Bond, Labour and Material Bond
What is a Bid Bond?
Owner wants 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 req’d by the bid documents.
In Canada 10% of the bid price
What is Consent of Surety?
a 2-party agreement
What is a Performance Bond?
Owner wants assurance that once they have awarded a contract, the contractor will perform according to the contract’s terms.
Canada up to 50% of the Contract
Labour and Material Payment Bond?
To avoid having their property sold to satisfy liens or legal claims filed by subs or suppliers in case they are not paid by contractor.
50% of contract price
Bond premiums
Bid Bond - $750+ per year
Performance Bond - $4.25-$5.00/$1000 if PB is 50%
Payment Bond - $3.00-$4.25/$1000 if PB is 50%
What is an Indemnity Agreement?
The separate agreement that the owner never sees directly, is called an indemnity agreement. The bond is the evidence that the owner wants to see that this separate contract exists.
surety guarantees, and indemnitors will pay the surety back for any losses
