Contractors Bonds

Contractors Bonds:  A Bond is a guarantee which is provided by a Third  

Party (bank or insurer) to a contract and which states that a certain sum of money  will be paid in the event of the contractor not carrying out his obligation.

Types of Bonds

1. Tender Bond: the requirement for this type of Bond is to discourage frivolous tenders.  This Bond guarantees that if the contractor is successful in winning a contract on the basis of his tender, he (contractor) will be able to execute the work.
2. Advance Payment Bond: this Bond usually covers a percentage of the contract price which the principal gives to the Contractor at the beginning of a contract, to enable him (Contractor) gather together the necessary labour and plant to commence work at site.  The Bond is exercised by the principal if the contractor fails to mobilize.
3. Performance Bond: this Bond covers the full period of the contract and is exercisable by the principal if the Contractor fails to honour his contractual obligations.