A Surety Bond is a risk transfer mechanism wherein an Insurer provides a guarantee to a Beneficiary or Obligee that the Principal or contractor will meet his contractual obligations. In case the Principal fails to deliver his promise, a monetary compensation is paid to the Obligee by the Insurer
A contractor who has been awarded with a contract to execute a project / supply machineries and required to provide security to the obligee / project owners at bidding and performance stages of contract, can obtain this policy
Surety Bond is designed to provide protection against breach of terms & conditions by the contractors either during the bidding stage or during the performance stage of a project.
Operates as an alternative of earnest money deposit and if the Contractor fails to accept the contract post winning the bid, Surety pays the Obligee earnest money or the cost of retendering or cost of differential between the original bidder and the next best bidder.
Typically, this bond offers coverage against the principal not being able to mobilise the requisite resources as defined in the contract but has taken advance from the Obligee (Beneficiary) and the delay caused due to such non-mobilisation of resources may result in project delays which an Obligee may claim from the Principal as per the Contract Terms.
This type of Bond can be raised by the Obligee in case the principal fails to perform the contractual terms and execute the project to its fullest, such bond can be raised at various milestones of the project or at the end of the project if the completion of said project is delayed or is not in accordance with the Contractual Terms.
Certain contract warranty that a portion of Contract will be retained for a specified period to ensure that the project has completed satisfactory performance period or machinery has performed to its proposed capabilities. Currently many Obliges keep 10% - 20% of the machine value as the retention money and is released after specified time period (Typically 1 year in case of Capital Goods, 1-3 years in case of Projects like Bridges, Culverts etc)
A conditional bond is also known as a default bond. Where If, certain conditions are met, the surety may be required to pay a set amount to the oblige or beneficiary. Whereas an unconditional Bond allows the oblige/ beneficiary to claim the money almost without any conditions. (except for some minor conditions such as the requirement of a written request being submitted within the valid term of the bond, etc.). In case of an alleged breach of contract, the beneficiary can use the unconditional bond to claim the money from the Surety immediately to compensate for any damages resulting from such breach.
Premium rates depends on various factors such as financial health of the company, project tenure, contract value along with other factors such as age of the company and credit score.
Maximum bond tenure is 60 months (including contract, maintenance period and extensions) or based on the Contract bond, whichever is lower.
Besides signed proposal form and other mandatory documents, we require indemnity letter from the insured while placing the business.
No, currently only projects within India are covered.
Currently surety bond is provided only to public beneficiaries.
In case project is not completed, there can be extension to surety bond issued; however, maximum tenure of the policy will be 60 months including extension.
By writing mail to "info@finocred.in"
Yes, currently only rated companies are issued surety bonds.
No, surety bond for individual contractors are generally not issued.
Yes, full details of each of JV partners is required in case project is going to be executed by SPV.
Maintenance or DLP period is covered only if surety bond insurance is provided during project period.
Bid bonds are generally written only if there is no issue to write performance Bond. One of the reasons to invoke bid bond is non-submission / deposit of performance bond.