CAIB 3 Chapter 5: Surety

Definition of Surety

Definition of Suretyship

Two main classes of bonds issued by surety companies.

The 3 C's: Form the Basis of Credit Appraisal

1. Character:

2. Capacity:

3. Capital:

Benefit of Suretyship:

Three Parties to any Surety Agreement:

Two Methods Available to the Surety to Collect Amounts Owed:

Eight Characteristics of Surety Bonds:

1. Three Party Contract

2. Principal Liable to the Surety

3. No Losses Expected:

4. Indeterminate Length and Non Cancellable:

5. Statutory or Non Statutory in Form:

6. Bond Limit (Penalty):

7. Bond Premium:

8. Written Contract:

Four Categories of Surety Bonds:

Contract Bond:

Supply Bond:

Contract Bonds used in Construction Agency:

Three Groups Capable of Designing Their Own Bond Wordings:

Three Risks Owners Face When Undertaking a Project Without Protection of Bonds:

Five Factors to be Considered by the General Contractor:

1. Terms of the Contract:

2. Relationship Between the Contractor and Subtrade:

3. Value of the Subcontract:

4. Subtrades Price in Relation to Other Bidders:

5. Whether the General Contractor Wishes to Pay the Cost of the Bonds, Rather than Assume the Risks Associated with not Doing So.

Three Methods of Tender Deposits Acceptable:

Two Things that Project Owners Are Assured when Tender Deposit is in Form of Bid Bond:

Two Guarantees of the Bid Bond to the Project Owner:

Causes for Involuntary Default:

Causes for Voluntary Default:

Two Options Available to the Surety if they are Satisfied the Contractor is in Position of Default:

Guarantee of the Labour and Material Bond:

Three Important Business Functions From the Guarantee of Labour and Material Bonds:

Reasons why Surety Companies may be Reluctant to Issue a Maintenance Bond:

Information required to Supplement the 3 C's (Character, Capacity, Capital):

1. Financial Strength of Owners:

2. Corporate Structure:

3. Key Personnel Resumes:

4. Banking Information:

5. Accounting Information

6. Insurance Carried

7. Recievable and Payables:

Three Main Items of Interest to Set a Contractor's Bond Limits:

Working Capital:

Net Worth:

3. Profitability:

Three Factors Affecting Working Capital:

Fixed Assets:

Liquid Assets:

Two Accounting Methods Used to Report Income Earned:

Seven Pieces of Information Shown on Work in Progress Report:

Four Forms of "Backup" Surety Company may Require for the Contractor:

1. Indemnity Agreement:

2. Third Party Indemnity:

3. Collateral Security:

4. Subordination Agreement:

Six Factors to be Considered before Issuing a Bond Request:

1. Nature of the Work:

2. Project Location:

3. Bond Limits Required:

4. Completion Date:

5. Conditions:

6. Communications:

Licensing Requirements Provides Governments with:

Compliance Guarantee:

Financial Guarantee:

Idemnity Guarantee:

Good Faith Guarantee:

Credit Guarantee:

Three Common Characteristics of all License and Permit Bonds:

Two Broad Classes of Bonds that May be Required by Probate Court or Court of Equity:

1. Court Bonds:

2. Fiduciary Bonds:

Plaintiff and Defendant Bonds:

Attachment Bond:

Injunction Bond:

Appeal Bond:

Administrators and Executors Bond:

Guardian and Committee Bond:

Trustees in Bankruptcy Bond:

Customs and Excise Bond:

Lost Document Bond:

Open Penalty Bond:

Fixed Penalty Bond: