This document is a graduate report on surety bonds submitted by Yajush G. Sonar to the Sardar Vallabhbhai National Institute of Technology in Surat, Gujarat, India to fulfill requirements for the course Project Formulation and Appraisal. The report provides an introduction to surety bonds, distinguishing them from traditional insurance. It describes the key parties in a surety bond and different types of bonds, with a focus on construction surety bonds. The report explains the need for construction bonds, outlines the main types (bid bonds, performance bonds, payment bonds), and describes how they work and the requirements for their use in public and private construction projects.
This presentation is one of my assignment in Business Law Class in Sampoerna University. This presentation is about Termination of Contract.
Slide: PowerPoint 2013
Design by: Hedi Fauzi
Image: Google Image
If you want the original file for your reference, feel free to ask me via email: hedi.fauzi@hotmail.com with subject [SlideShare] (Your Subject)
This presentation is one of my assignment in Business Law Class in Sampoerna University. This presentation is about Termination of Contract.
Slide: PowerPoint 2013
Design by: Hedi Fauzi
Image: Google Image
If you want the original file for your reference, feel free to ask me via email: hedi.fauzi@hotmail.com with subject [SlideShare] (Your Subject)
Contract of guarantee - Legal Environment of Business - Business Law - Manu M...manumelwin
According to Section 126, “a contract of Guarantee is a contract to perform the promise or to discharge the liability of a third person in case of his default.”
Clause 14.2 Advance Payment-Understanding Clauses in FIDIC ‘Conditions of Con...Divyanshu Dayal
•Advance payment is an interest free loan to the contractor.
•Advance payment is only paid on fulfillment of certain conditions as stipulated in the clause on receipt of a statement of an interim payment, advance guarantee and performance security.
•Advance guarantee shall remain valid until the advance payment has not been completely repaid. This repayment is done through proportional deduction in the contract price or as stipulated in the particular conditions of the contract.
•Advance payment is also linked with taking over certificate, termination of the contract and force majeure.
What Is Contract?, Formation of Indian Contract Act, Agreement,Offer or Proposal, TYPES OF OFFER, Acceptance, Capacity, Minors, Unsound Mind, Consideration, Consent, Legal Object, Void Agreement, Discharge of Contract, Remedies for breach of contracts, Contingent Contract, Contract of Indemnity, Essential elements of a contract of indemnity , RIGHTS OF INDEMNITY HOLDER, Contract of Guarantee, Essential elements of a contract of Guarantee, CONTRACT OF BAILMENT, Essential elements of a contract of Bailment, MODES OF DELIVERY
A thorough analysis of FIDIC and it implication on COnstruction industry explained in this presentation for the beginners. It has been broken down to simplified version
Risks associated in related contracts within project financing in constructio...eSAT Journals
Abstract Lending loan for project financing exposes the lender of many risks involved in the related contracts within project financing. To safeguard themselves from these risks Lenders generally put in a lot of efforts to minimise the affect of these risks. We will discuss the scope and effectiveness of the efforts that help to protect the lenders to suffer from losses with the help of different related contracts and examples. Key Words: Contractors, project financing, related contracts, indemnity.
Contract of guarantee - Legal Environment of Business - Business Law - Manu M...manumelwin
According to Section 126, “a contract of Guarantee is a contract to perform the promise or to discharge the liability of a third person in case of his default.”
Clause 14.2 Advance Payment-Understanding Clauses in FIDIC ‘Conditions of Con...Divyanshu Dayal
•Advance payment is an interest free loan to the contractor.
•Advance payment is only paid on fulfillment of certain conditions as stipulated in the clause on receipt of a statement of an interim payment, advance guarantee and performance security.
•Advance guarantee shall remain valid until the advance payment has not been completely repaid. This repayment is done through proportional deduction in the contract price or as stipulated in the particular conditions of the contract.
•Advance payment is also linked with taking over certificate, termination of the contract and force majeure.
What Is Contract?, Formation of Indian Contract Act, Agreement,Offer or Proposal, TYPES OF OFFER, Acceptance, Capacity, Minors, Unsound Mind, Consideration, Consent, Legal Object, Void Agreement, Discharge of Contract, Remedies for breach of contracts, Contingent Contract, Contract of Indemnity, Essential elements of a contract of indemnity , RIGHTS OF INDEMNITY HOLDER, Contract of Guarantee, Essential elements of a contract of Guarantee, CONTRACT OF BAILMENT, Essential elements of a contract of Bailment, MODES OF DELIVERY
A thorough analysis of FIDIC and it implication on COnstruction industry explained in this presentation for the beginners. It has been broken down to simplified version
Risks associated in related contracts within project financing in constructio...eSAT Journals
Abstract Lending loan for project financing exposes the lender of many risks involved in the related contracts within project financing. To safeguard themselves from these risks Lenders generally put in a lot of efforts to minimise the affect of these risks. We will discuss the scope and effectiveness of the efforts that help to protect the lenders to suffer from losses with the help of different related contracts and examples. Key Words: Contractors, project financing, related contracts, indemnity.
Rob Tolley London - Construction Surety BondsRob Tolley
Due to the significant level of risk inherent in the construction industry, many project owners ensure that they only work with contractors and subcontractors who are both licenced and bonded. This is an effective way to transfer risk and protect project owners from suffering a financial loss caused by projects taking longer than anticipated or a range of unforeseen factors.
Surety Industry Overview: State of the Industry by Cissie ScogginDon Grauel
Cissie Scoggin of Liberty Mutual Insurance presented "Surety Industry Overview: State of the Industry" to the 68th Annual F. Addison Fowler Fall Seminar on October 17, 2014.
Active Capital Reinsurance Ltd commenced operations in 2007, mainly providing credit-related reinsurance solutions to financial institutions in Latin America, and it has a general insurance and reinsurance license issued in Barbados.
Panel Discussion on Credit Enhancement at the 2019 ASEAN PPP Summit: The Public-Private Partnership Model and its Merits in Attracting Foreign Direct Investments, the leading regional forum on infrastructure investment in Southeast Asia.
Legal Newsletter for the construction industry highlighting Collateral Warranties, New JCT 2016 Edition of contracts, apprenticeships and the health & safety revolution
This is an all about the overview of the topic "Financing Project Through Structured Finance" with a proper explanation related to Project Finance and Structured Finance.
Sachpazis:Terzaghi Bearing Capacity Estimation in simple terms with Calculati...Dr.Costas Sachpazis
Terzaghi's soil bearing capacity theory, developed by Karl Terzaghi, is a fundamental principle in geotechnical engineering used to determine the bearing capacity of shallow foundations. This theory provides a method to calculate the ultimate bearing capacity of soil, which is the maximum load per unit area that the soil can support without undergoing shear failure. The Calculation HTML Code included.
Welcome to WIPAC Monthly the magazine brought to you by the LinkedIn Group Water Industry Process Automation & Control.
In this month's edition, along with this month's industry news to celebrate the 13 years since the group was created we have articles including
A case study of the used of Advanced Process Control at the Wastewater Treatment works at Lleida in Spain
A look back on an article on smart wastewater networks in order to see how the industry has measured up in the interim around the adoption of Digital Transformation in the Water Industry.
CW RADAR, FMCW RADAR, FMCW ALTIMETER, AND THEIR PARAMETERSveerababupersonal22
It consists of cw radar and fmcw radar ,range measurement,if amplifier and fmcw altimeterThe CW radar operates using continuous wave transmission, while the FMCW radar employs frequency-modulated continuous wave technology. Range measurement is a crucial aspect of radar systems, providing information about the distance to a target. The IF amplifier plays a key role in signal processing, amplifying intermediate frequency signals for further analysis. The FMCW altimeter utilizes frequency-modulated continuous wave technology to accurately measure altitude above a reference point.
Final project report on grocery store management system..pdfKamal Acharya
In today’s fast-changing business environment, it’s extremely important to be able to respond to client needs in the most effective and timely manner. If your customers wish to see your business online and have instant access to your products or services.
Online Grocery Store is an e-commerce website, which retails various grocery products. This project allows viewing various products available enables registered users to purchase desired products instantly using Paytm, UPI payment processor (Instant Pay) and also can place order by using Cash on Delivery (Pay Later) option. This project provides an easy access to Administrators and Managers to view orders placed using Pay Later and Instant Pay options.
In order to develop an e-commerce website, a number of Technologies must be studied and understood. These include multi-tiered architecture, server and client-side scripting techniques, implementation technologies, programming language (such as PHP, HTML, CSS, JavaScript) and MySQL relational databases. This is a project with the objective to develop a basic website where a consumer is provided with a shopping cart website and also to know about the technologies used to develop such a website.
This document will discuss each of the underlying technologies to create and implement an e- commerce website.
Hybrid optimization of pumped hydro system and solar- Engr. Abdul-Azeez.pdffxintegritypublishin
Advancements in technology unveil a myriad of electrical and electronic breakthroughs geared towards efficiently harnessing limited resources to meet human energy demands. The optimization of hybrid solar PV panels and pumped hydro energy supply systems plays a pivotal role in utilizing natural resources effectively. This initiative not only benefits humanity but also fosters environmental sustainability. The study investigated the design optimization of these hybrid systems, focusing on understanding solar radiation patterns, identifying geographical influences on solar radiation, formulating a mathematical model for system optimization, and determining the optimal configuration of PV panels and pumped hydro storage. Through a comparative analysis approach and eight weeks of data collection, the study addressed key research questions related to solar radiation patterns and optimal system design. The findings highlighted regions with heightened solar radiation levels, showcasing substantial potential for power generation and emphasizing the system's efficiency. Optimizing system design significantly boosted power generation, promoted renewable energy utilization, and enhanced energy storage capacity. The study underscored the benefits of optimizing hybrid solar PV panels and pumped hydro energy supply systems for sustainable energy usage. Optimizing the design of solar PV panels and pumped hydro energy supply systems as examined across diverse climatic conditions in a developing country, not only enhances power generation but also improves the integration of renewable energy sources and boosts energy storage capacities, particularly beneficial for less economically prosperous regions. Additionally, the study provides valuable insights for advancing energy research in economically viable areas. Recommendations included conducting site-specific assessments, utilizing advanced modeling tools, implementing regular maintenance protocols, and enhancing communication among system components.
Saudi Arabia stands as a titan in the global energy landscape, renowned for its abundant oil and gas resources. It's the largest exporter of petroleum and holds some of the world's most significant reserves. Let's delve into the top 10 oil and gas projects shaping Saudi Arabia's energy future in 2024.
Top 10 Oil and Gas Projects in Saudi Arabia 2024.pdf
Surety Bonds
1. A Graduate Report on
Surety Bonds
For the Course of
‘Project Formulation and Appraisal (CE-636)’
of the M.Tech (I) Sem-2 of Urban Planning
Submitted by: Yajush G. Sonar (P17UP010)
Faculty Advisor: Dr. Dilip A. patel
P.G Section (Urban Planning),
Department of Civil Engineering,
सरदार वल्लभभाई रा�ीय �ौ�ोिगक� संस्थान, सूरत
Sardar Vallabhbhai National Institute of Technology
Surat, Gujarat
(2017-2018)
2. CERTIFICATE
This is to certify that a Graduate Report on “Surety Bonds” submitted by me has
satisfactorily completed the requirement for the Subject CE: 636 –Project Formulation and
Appraisal during the year 2017-18.
Yajush G. Sonar (P17UP010)
Faculty Advisor,
Dr. Dilip A. Patel
P.G Section (Urban Planning),
Department of Civil Engineering,
सरदार वल्लभभाई रा�ीय �ौ�ोिगक� संस्थान, सूरत
Sardar Vallabhbhai National Institute of Technology,
Surat, Gujarat
(2017-2018)
3. ACKNOWLEDGEMENT
I earnestly wish to express my heartfelt thanks and a sense of gratitude to Dr. Dilip A. Patel
for his valuable guidance and constant inspiration in preparing this report. I also acknowledge
the inspiration and encouragement provided by him. Frequent interactions with him in all
aspects of the report making have been a great learning experience. I shall always cherish his
support and encouragement.
YAJUSH G. SONAR
4. CONTENTS
1. Introduction
1.1. Introduction
1.2. Difference and Similarities in Surety bonds and Traditional Insurance
1.3. Types of Surety Bonds
2. Construction Surety Bonds
2.1. Overview
2.2. Need
2.3. Types of Contract/Construction Surety Bonds
2.4. Requirement of Construction surety bonds
2.5. Operation and working
References
5. CHAPTER 1
INTRODUCTION
1.1. Introduction:
A surety bond is defined as a contract among at least three parties:
• The Obligee: the party who is the recipient of an obligation.
• The Principal: the primary party who will perform the contractual obligation.
• The Surety: who assures the obligee that the principal can perform the task.
A surety bond is not an insurance policy. A surety bond is a guarantee, in which the surety
guarantees that the contractor, called the “principal” in the bond, will perform the
“obligation” stated in the bond. For example, the “obligation” stated in a bid bond is that the
principal will honour its bid; the “obligation” in a performance bond is that the principal will
complete the project; and the “obligation” in a payment bond is that the principal will
properly pay subcontractors and suppliers. Bonds frequently state, as a “condition,” that if the
principal fully performs the stated obligation, then the bond is void; otherwise the bond
remains in full force and effect.
1.2. Difference and Similarities in Surety bonds and Traditional Insurance:
Surety Bonds Insurance Policies
Regulated by State Insurance Department Regulated by State Insurance Department
Prequalification intended to prevent loss Spreads Fortuitous loses among large number
of similar risks
Three party- contractor and surety bear risk Two party- risk transfer to Insurer
Coverage is Project specific Coverage is Term specific and renewable
Bonds form can be statutory or may be
negotiated by owner or surety and contractor
Policy forms vary by Insurance company
Coverage- 100% of contract price for Coverage upto policy limit, less deductible
6. performance, 100% for payment upto the
penal sum of the bond
Claims- Surety has the right to contract
balance and indemnity from contractor for
costs associated for settling a claim
No right to insured assets, however
companies can subrogate against a third party
of another insurer
Bonds are required by law for public works
and voluntarily by private owners
Buying insurance is a voluntary way of
managing risk of loss for the insured
1.3. Types of Surety Bonds:
1. Contract/Construction Surety Bonds:
Contract bonds, used heavily in the construction industry by general contractors as a
part of construction law, are a guaranty from a Surety to a project's owner (Obligee)
that a general contractor (Principal) will adhere to the provisions of a contract.
Contract/Construction Surety bonds are further classified into Bid Bond, Performance Bond
and Payment Bond.
2. Commercial Surety Bonds:
Commercial bonds represent the broad range of bond types that do not fit the
classification of contract. They are generally divided into four sub-types: license and
permit, court, public official, and miscellaneous.
Similarly, Commercial surety bonds are further classified into License and permit bonds,
Court bonds, Public official bonds and Miscellaneous bonds.
Whereas, here Contract /Construction Bonds are in the scope and to be studied further.
7. CHAPTER 2
CONSTRUCTION SURETY BONDS
2.1. Overview:
A surety bond is a three-party contract comprised of the Surety, the Principal (contractor) and
the Obligee (owner). The Principal promises to perform in accordance to its contract
obligations. Surety bonds used in Construction are called Contract Surety Bonds.
Construction bond is a type of surety bond used by investors in construction projects to
protect against disruptions or financial loss due to a contractor's failure to complete the
project or to meet contract specifications.
2.2. Need:
A surety bond is there to ensure project completion within the terms of the contract. If a
contractor experiences cash flow problems, the Surety may assist the contractor. If the
contractor abandons the job, the Surety may replace the contractor.
Most surety companies are subs or divisions of insurance companies and both surety bonds
and insurance policies are regulated by state insurance departments. However, insurance
policies are designed to compensate against unforeseen adverse events. Surety bonds are
designed to guarantee the contractor’s contractual obligations. The Surety prequalifies the
contractor based on financial strength and construction expertise. The bond is underwritten
with little expectation of loss.
2.3. Types of Contract/Construction Surety Bonds:
A surety is the financial guarantor of a construction bond, guaranteeing the obligee that the
contractor will act in accordance with the terms established by the bond. Surety companies
will evaluate the financial merits of the principal builder and charge a premium according to
8. their calculated likelihood that an adverse event will occur. A surety can assist a contractor
having cash flow problems and may also replace a contractor who abandons a project. There
are three main types of construction bond provided by a surety,
1. Bid Bond:
• This bond is necessary to the competitive process bidding. Each contending
contractor has to submit a bid bond along with their bids to protect the project
owner in the event that a contractor backs out of the contract after winning the
bid or fails to provide a performance bid, which is required to start working on
the project.
• Provides financial protection to an obligee if a bidder is awarded a contract
pursuant to bid documents, but fails to sign the contract and provide required
performance and payment bonds. The bid bond process also helps to screen
out unqualified bidders and is necessary to the process of competitive bidding.
2. Performance Bond:
• A bid bond is replaced by a performance bond when a contractor accepts a bid
and proceeds to work on the project. The performance bond protects the owner
from financial loss if the contractor’s work is subpar, defective, and not in
accordance with the terms and conditions laid out in the agreed contract.
• Protects the owner from financial loss in the event the contractor fails to
perform the contract in accordance with its terms and conditions. If the
Obligee declares the Principal in default and terminates the contract, it can call
on the Surety to meet the Surety’s obligations under the bond.
3. Payment Bond:
• This bond, also called a labour and material payment bond, is a guarantee that
the winning contractor has the financial means to compensate his or her
workers, subcontractors, and suppliers of materials.
• Assures the contractor will pay certain workers, subcontractors and material
suppliers.
2.4. Requirement of Construction surety bonds:
9. 1. Public Sector - Statutory Requirement:
a) Federal Government- Protects taxpayer dollars; assures that lowest bidder is
capable of completing the project.
b) State and Local Governments- Necessary payment protection for
subcontractors and suppliers.
2. Private Sector - Discretionary Owner Requirement:
a) Private Owners- Surety assures qualified contractor; provides expertise,
experience and assistance; in event of contractor failure surety handles and
completes the project.
b) Lending Institutions- Surety assures project will be built according to terms
and conditions of the contract; lender can be dual obligee with direct rights
under the bond.
c) General Contractors- May require bonds from their subcontractors.
2.5. Operation and working:
When a contractor vies for a construction job, he is usually required to put up a contract bond
or construction bond. The construction bond provides assurance to the project owner that the
contractor will perform according to the terms stated in the agreement. On larger projects,
construction bonds may come in two parts - one to protect against overall job incompletion
and another to protect against non-payment of materials from suppliers and labour from
subcontractors.
There are generally three parties involved in a construction bond –the investor/project
owners, the party or parties building the project, and the surety company that backs the bond.
The project owner or investor, also known as the obligee, is typically a government agency
that lists a contractual job that it wants done. To reduce the likelihood of a financial loss, the
obligee requires that all contractors put up a bond. The contractor selected for the job is
usually the one with the lowest bid price since investors want to pay the lowest amount
possible for any contract.
10. By submitting a construction bond, a principal, that is the party managing the construction
work, is stating that he can complete the job according to the contractual policy. The
principal provides financial and quality assurance to the obligee that not only does he have
the financial means to manage the project but that the construction will be carried out to the
highest quality specified. The contractor purchases a construction bond from a surety which
runs extensive background and financial checks on a contractor before approving a bond.
If the principal fails to perform the obligation stated in the bond, both the principal and the
surety are liable on the bond, and their liability is “joint and several.” That is, either the
principal or surety or both may be sued on the bond, and the entire liability may be collected
from either the principal or the surety. The amount in which a bond is issued is the “penal
sum,” or the “penalty amount,” of the bond. Except in a very limited set of circumstances, the
penal sum or penalty amount is the upward limit of liability on the bond.
The person or firm to whom the principal and surety owe their obligation is called the
“obligee.” On bid bonds, performance bonds, and payment bonds, the obligee is usually the
owner. Where a subcontractor furnishes a bond, however, the obligee may be the owner or
the general contractor or both. The people or firms who are entitled to sue on a bond,
sometimes called “beneficiaries” of the bond, are usually defined in the language of the bond
or in those state and federal statutes that require bonds on public projects.
Through a surety bond, the surety agrees to uphold—for the benefit of the obligee—the
contractual promises (obligations) made by the principal if the principal fails to uphold its
promises to the obligee. The contract is formed so as to induce the obligee to contract with
the principal, i.e., to demonstrate the credibility of the principal and guarantee performance
and completion per the terms of the agreement.
The principal will pay a premium (usually annually) in exchange for the bonding company's
financial strength to extend surety credit. In the event of a claim, the surety will investigate it.
If it turns out to be a valid claim, the surety will pay and then turn to the principal for
reimbursement of the amount paid on the claim and any legal fees incurred. In some cases,
the principal has a cause of action against another party for the principal's loss, and the surety
will have a right of subrogation "step into the shoes of" the principal and recover damages to
make up for the payment to the principal.
11. If the principal defaults and the surety turns out to be insolvent, the purpose of the bond is
rendered nugatory. Thus, the surety on a bond is usually an insurance company whose
solvency is verified by private audit, governmental regulation, or both.
A key term in nearly every surety bond is the penal sum. This is a specified amount of money
which is the maximum amount that the surety will be required to pay in the event of the
principal's default. This allows the surety to assess the risk involved in giving the bond; the
premium charged is determined accordingly.
12. REFERENCES
Bibliography
[1] Zurich ,"Contract Surety Bonds", Zurich, August 13, 2012
[2] Dan Donohue and George Thomas, “Construction Surety Bonds In Plain English”, 1996
[3] Alice Zelikson, GenRe (A Berkshire Hathaway Company) Article, Mar 19, 2015
Webliography:
www.wikipedia.com
www.investopedia.com