Surety Bonds

Securing your
performance obligations

Remove the uncertainty

For many companies, surety or insurance bonds are the ideal way to secure performance obligations providing an effective alternative to bank guarantees or retention monies.

Remove the uncertainty

What is a Surety / Insurance Bond?

Surety bond insurance is a financial guarantee that the covered party will fulfil their contractual obligations. There are three parties involved in a surety bond:

The principal is the party who is covered and who is obligated to fulfill the terms.
The obligee/beneficiary is the party requesting the guarantee.
The surety is the party that issues the bond.

Surety bonds provide certainty around expansion and growth or acquisition targets and allow for greater flexibility as companies can leverage off their capital base, enhancing working capital and liquidity opportunities used and recognised in major trading countries worldwide.

Types of Surety Bonds

There are different types of surety bonds. Surety bonds work the same way but for different types of industries or professions. With any surety bond, if the principal fails to comply with the agreed-upon terms, then the obligee may file a claim on the bond. The surety is then obligated to pay the proceeds of the claim to the obligee to cover losses.

Examples of bonds include:

Performance bonds
Maintenance/defects bonds
Retention release bonds
Advance payment bonds
Bid bonds
Off-site material bonds
Workers compensation bonds
Mining rehabilitation bonds
Security of payment bonds (beneficiaries)

Where can Surety Bonds be used?

Surety bonds can be used whenever there is a requirement placed on a obligee/beneficiary to support their contractual obligations. Usage is common amongst the following industries:

Engineering (mechanical, civil, electrical) – roads, pipelines, bridges.
General Building – hospitals, schools, shopping centres, high rise.
Manufacturing – design, supply, delivery, commissioning.
Services – open space management, refuse collection.
Technology – communication projects.

What are the benefits of Surety Bonds?

For the obligee/beneficiary:

Doesn’t impact on established credit lines.
A facility where generally, no tangible or collateral security is required.
The ability to take on new projects.
Better utilisation of the company’s balance sheet.
A close working relationship with well rated underwriters.
Fast, efficient turnaround when issuing bonds to your principals.

For the principal:

Security against default or non performance by contractors.
Flexibility in agreeing to specific terms and conditions.
Knowing that a comprehensive assessment of the contractors financial capacity has taken place.
A level of security of S&P A+ or better.

HDL, the right partner for you.

Receivables Trade Credit & Surety (RTC)

Receivables Trade Credit & Surety (RTC) is an authorised representative of Horsell Duffy Langley operating as a specialist Advisor and Broker on all Trade Credit Risks and Surety Solutions.

Led by David Pulver, who has over 30 years experience in advising companies on their risk management procedures and systems, RTC helps clients avoid bad debts and have been involved in settling many large credit risk claims.

The RTC team have assisted Financiers and Contractors requiring the enhanced support of well rated Insurers. These enhancements have been used to assist receivables financing, project financing and contractor guarantee obligations.

The RTC team are always available to assist on advisory and broking assignments.

Contact RTC for more information

What is the difference between Surety Bonds and Traditional Secured Bank Guarantees?

Both are unconditional and on demand guarantees, issued by an S&P (Standard & Poor’s) rated financial institution.

In the case of a Surety Bond, the financial institution is an insurer not a bank.

The issuers of Insurance Bonds do not typically require the Bond to be secured by cash deposit which benefits the obligees/beneficiaries cashflow.

A Bank Guarantee requires security to be lodged against the Bank Guarantee facility requiring the obligee/beneficiary to have significant capital reserves, property or cash to use as collateral restricting growth opportunities.

Surety Bonds and Bank Guarantees are generally identical and have the same obligations at law, payment must be made on demand when called on for payment.

Complimentary Review

Securing optimal insurance protection is becoming more challenging.

Having a fresh set of eyes can make a dramatic difference. HDL welcomes the opportunity to evaluate and challenge your current risk and insurance program in a confidential manner that avoids disrupting existing relationships.