What is a Performance Bond?
Put simply, a Performance Bond (or Surety Bond), is aContract of Guarantee in which the Guarantor undertakes to pay damages to a Third Party if there is a breach by his Contractor.In the Construction Industry, Performance Bonds issued by Surety Companies are used to reassure Employers that the Contractor will Perform in accordance with the Building Contract Bonds and Guarantees are not Insurance Products but fall into the category of tripartite agreements.
What information do Underwriters require?
Our underwriters need to assess not only the overall financial strength of the applicant but also its technical and commercial ability, previous experience and current workload. Therefore in order for our underwriters to consider each requirement fully, they require the following information:
Completed Application Form
Latest Accounts and Management Accounts
Work in progress schedule
If the beneficiary has not specified a preferred wording then we can suggest the standard ABI conditional form of bond wording which is acceptable to all of our providers. Once our underwriters have been in receipt of the above mentioned information, they should be in a position to offer a non-binding indication of terms as soon as possible.
What securities may a Surety Provider require in support of a Bond?
When instructing us to proceed with taking out a Bond with one of our Surety Providers there will be an up front premium payable before any Bond can be issued. This is usually a flat rate or percentage of the Bond amount. If the Bond duration exceeds 12 months, depending on which Surety Provider has offered terms, this rate can sometimes be Per Annum Pro Rata.Besides the one off premium, all Bonds are secured with a Corporate Counter Indemnity also known as an Agreement of Indemnity.Further securities that may be required can also include Directors Personal Guarantees and on rare occasions a Cash Collateral Deposit. However, we try our best to avoid and negotiate these as much as possible in order to maintain your companies Cash Flow.
What is a Corporate Counter Indemnity?
A Corporate Counter Indemnity is a legal agreement which entitles our Surety Providers, as guarantors of your surety bonds, to be reimbursed in the event that they have to pay any claims under the bonds which they have issued on your behalf. A counter indemnity reinforces their common law and statutory recourse rights against the company for whom they issue bonds and for its group.
Can you always provide an offer of terms after you receive applications?
All applications for a surety bond or facility are sent to our underwriting panel for their consideration. Applications must meet their underwriting criteria in order for terms to be offered. In some cases an offer of terms or facility may only be offered subject to the satisfaction of additional conditions. Since our inception in 1999 we have managed to secure an offer of terms for almost all of our clients.
Do you consider requirements with On-Demand Bond Wordings?
On-Demand wordings are usually only available through Banks. However, yes we have successfully placed On-Demand wordings for several of our clients with some of our Surety Providers in the past. It is generally harder to get an offer of support when an On-Demand wording is required. We would suggest that if possible our clients negotiate for a
conditional wording, as they are less onerous for both the Contractor and the Surety Provider and they are usually easier to place.
Can you set up Bond Facilities?
Yes, if you require more than one bond to be issued during the year a facility may be the best option. A facility is designed to establish a close and long standing relationship between you the client and your chosen Surety Provider. This allows work to be tendered or negotiated in the knowledge that a bond facility is available to meet bonding requirements as they arise.
Can I ask you to cancel a bond issued to guarantee my obligations?
Generally not. Bonds (unlike indemnity insurance) are agreements between three persons (Employer / Contractor / Surety) for the benefit of one of them (the Employer). Unless the bond is released or expires in accordance with its express terms, only the Employer can agree to release / cancellation.
FAQs – What is the difference between surety & insurance?
Surety bonds (as contracts of guarantee) are not contracts of insurance. They are made available on recourse terms so that, if the surety has to pay the employer, it is entitled to seek reimbursement from the principal / contractor.
How to Apply
You can submit an application for a bond requirement here on our website by going to our online application form. Online Application. Alternatively our opening hours are 9.00am to 5.00pm where you can contact our team at:
Tel: 0151 931 5599
If you have any further questions or queries, please don't hesitate to contact us.