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A Bond is a guarantee of performance, however it should be noted that bonds are not insurance contracts even though they are issued by insurance companies. Insurance contracts are agreements between two parties, whereas bonds involve three parties – the contractor, the employer and the surety (guarantor).

The employer is the beneficiary under the bond while the contractor and the surety together guarantee that the contractual obligation will be fulfilled. If the contractor fails to fulfil his obligations, the surety too has failed. The employer can “call in” the bond, whereas the surety has rights to recover against the contractor. The bond remains in force until the obligations of the contractor have been complied with and completed. On completion, the employer will release the bond and the surety’s risk ceases. Unlike standard insurance contracts bonds do not contain a cancellation clause.

There are several types of bonds:

1. Performance Bond – this bond guarantees that the contractor will perform his obligation under the contract. It is usually done for a percentage of the contract value.

2. Bid or Tender Bond – this satisfies the employer that the bid is a reasonable one and that if accepted, the contractor will effect a contract to perform the work including any bonding requirements. Any claims made would be based on the costs incurred in undertaking another tender procedure.

3. Advance Payment Bond – this bond is similar to a performance bond in that, the employer receives a guarantee that any monies advanced will not be lost as a result of poor performance or default by the contractor.

4. Maintenance Bond – this bond guarantees that once the contract has been completed, the contractor will fulfil his obligation during the defects liability period. It may be issued in lieu of retention monies during the maintenance period.

5. Retention Bond– this bond is given in lieu of retention elements of progress payment.

6. Custom Bond – this bond guarantees that payments would be made in respect of Customs Duties to the Government for goods imported and/or re-exported.

Beacon does not accept On Demand Bonds under any conditions, and the company’s clients are advised against engaging in contracts that require this type of bond.

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