What are Surety and Contract bonds?

Surety and Contract Bonds provide a guarantee (“Surety” from an Insurer) to the Principal of a contract that the contractor will carry out works according to the terms of the contract.

They free up working capital for the contractor and offer a flexible alternative to bank guarantees, which many contractors can’t afford due to their stretched budgets.

  • Surety Bonds generally require no tangible financial security to be put in place, which means the contractor can use their working capital on financing projects rather than on guarantees,
  • The Surety (Insurer) can’t cancel Surety Bonds and in the event of a claim, they must pay the Principal their full entitlement under the bond. However the Surety has the right to seek the full recovery of funds from the contractor,
  • Surety Bonds are often arranged with less emphasis on financial security and more on the performance and abilities of the contractor’s business. This is because the risk to the Surety is relatively low as long as the contractor appears as though they will be able to fulfil their contractual obligations.

To find out more about Surety and Contract Bonds, speak to one of our specialists today.

Who needs them?

Surety and Contract Bond Insurance is most often used in the construction and infrastructure industries.

If you’re a contractor on a project and don’t want to spend all your hard earned money on bank guarantees, Surety Bonds are the perfect alternative for you.

They will also give the Principal of the contract the peace of mind that the work outlined in the contract is secure.

Note: Although the contractor arranges the bond and pays the premium, the Principal of the contract is the beneficiary of the bond, not the contractor.

Types of Surety Bonds and Contract Bonds

  • Performance Bonds
    Provides security to the Principal against contractor non-performance or default, and supports contractor obligations during the contract period.
  • Maintenance Bonds
    Secures contractor’s post-completion obligations during the warranty or latent defects period, usually 3-12 months post-completion
  • Bid Bonds
    Supports a contractor’s bid to tender to ensure they will enter into a contract if accepted
  • Advance Payment Bonds
    Secures the Principal’s position on funds advanced to the contractor for capital purchases or site preparation
  • Retention Release Bonds
    Provide security to the Principal when the contractor is given advanced funds from the retention fund.

Important Tips

If goods or materials are held off site and paid for by the beneficiary, the bond responds if the goods or materials are not available when required for use in the contract