The Benefits of Surety and Contract Bonds

Published: 29/10/2018

The Benefits of Surety and Contract Bonds

Surety and Contract Bonds are a flexible, efficient and cost-effective way to finance your security obligations.

Surety Bonds carry the same obligations at law as a bank guarantee and are a widely accepted form of security by local, state and federal Government divisions.

Benefits for Contractors

  • Provides funding flexibility - bonds offer contractors the option to set up separate lines of credit with surety or insurance companies, which can protect their lines of credit with banks.
  • Removes growth constraints - Unlike bank guarantees, no tangible security, such as assets or working capital, is required by the bond provider. Contractors can consider taking on additional projects without being restricted by these security requirements.
  • Facilitates better cash flow position - with assets not tied down as collateral, bonds offer an efficient way to help improve liquidity and free up valuable working capital which can be used to finance projects.
  • Premium is paid to the bond provider - contractors will not incur alternative costs such as those associated with traditional bank overdraft facilities.
  • Advance payment bonds can secure the position of funds advanced to the contractor for capital purchases, paying subcontractors/labourers and site preparation.

Benefits for Beneficiaries/Principals

  • Bonds provide security to the beneficiary if the contractor fails to meet their contractual obligations due to default, bankruptcy, etc.
  • Surety bonds carry an identical wording to a bank guarantee are are therefore widely accepted to be as safe as a bank guarantee.
  • Maintenance bonds secure the contractor's obligations 3-12 months after the completion of the project. This means the beneficiary can still file a claim against the bond during the maintenance term.

How Coverforce can help

Our specialist insurance brokers can assist in arranging many types of Surety and Contract Bonds including; Performance Bonds, Bid Bonds, Advance Payment Bonds, Retention Release Bonds, Maintenance Bonds and Off-Site Material Bonds.

To arrange a bond, or to find out more about how Surety and Contract Bonds can help your business, contact Coverforce on 1 3000 COVER.

The information provided in this article is of a general nature only and has been prepared without taking into account your individual objectives, financial situation or needs. For advice tailored to your specific business or individual circumstances, please contact Coverforce directly.

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