BOND INSURANCE

 

This is a special type of insurance in terms of its provisions and scope of cover. It is generally an attempt by the principal party to a contract to transfer liabilities to the insurance companies in monetary terms for failure or non -performance of contracts awarded to contractors. It is a guarantee- ship & surety-ship insurance.

 

The most common Bond arrangement includes the following:-

 

Performance Bond (PB)

This policy is designed to provide financial compensation to the principal party to a contract for all claims and liabilities to the tune of the total contract amount as a result of failure or non-performance or improper performance of the contracts. Under the policy the insurance company, being the surety of the contractor in this context, undertakes to pay to the contractor upon first demand any such amount, as the contractor shall require, not exceeding the full contract value.

 

Advance Payment Bond (APB)

This aspect of the bond insurance is issued only to cover the advance payment given to the contractor as against the full contract value. Most contract agreements require that mobilization or advance payment for certain percentage of the full contract value be given to the contractor and upon satisfactory completion, the balance amount is paid. The advance payment bond guarantees the amount so advanced for the contractor in the event of failure on the paid of the contractor.