Surety (Performance) Bonds

Definition

A surety bond is an undertaking provided by an insurance company to a third party on behalf of a client/contractor.

Surety bonds provide contract surety in lieu of the client/contractors obligations to perform and complete a contract with a third party.

All surety bonds are generally unconditional, pay on demand obligations between the insurance company and the beneficiary which are without reference to third parties.

Advantages of Surety Bonds

For Beneficiaries

Ability to tailor the bond wording to meet the specific requirements of the contract at hand,

Bonds underwritten by APRA licensed insurers who can demonstrate a minimum S&P A- rating plus a sound understanding of analysing the financial capacity of clients/contractors, and

Small to large bond facilities available from both domestic and international surety providers.

For Clients/Contractors

Bonds are typically provided on an unsecured basis, meaning no working capital is quarantined in frustrating banking facilities (in lieu of collateral security a hold harmless indemnity applies),

Facilities cater for individual bonds in favour of multiple beneficiaries,

Fixed annual costs, and

Simple application and annual review process.

Costs

Insurance companies charge a fixed annual fee as a percentage of the bond value. These fees typically range from 1% to 3% per annum.

Administration charges apply and are dependent on the complexity of the facility. Administration fees are always quoted in advance after an initial complimentary underwriting review/assessment.

General disbursements apply on a ‘as needs basis’ – always quoted in advance.