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Surety bonds are a viable alternative to bank bonds or letters of
credit, improving your liquidity by freeing up bank lines for
working capital and possible acquisition financing.
Many of our clients operate in a global marketplace. We recognise the
need for global support with surety centres of excellence in London,
New York, Toronto, São Paulo, Hong Kong, Shanghai, Sydney
Transferring the risk of contractor default to a surety bond opens up
your job tender opportunities, supports order book grants
and transfers cash-flow contractor default to a surety.
We have extensive knowledge of local customs, markets and laws with a
worldwide network of underwriting and claims offices, enabling us
to tailor coverage to suit local customs and regulations. Clients
benefit from our local expertise and service in responding to bonding
requirements in South East Asia, the U.S. and more than 160 countries
and jurisdictions around the globe.
We handle traditional and non-traditional surety with equal ease and
can customise a wide variety of products to match the diverse needs of
Owners of projects, private companies or government bodies, usually require surety bonds from their contractors to protect themselves from the enormous cost of contractor failure. No construction project owner, public or private, can afford to take the risk in awarding a project to a contractor whose responsibility is uncertain or who may go into liquidation halfway through the job. Thus, in order to seal a contract with an owner, a contractor needs a surety company’s financial resources to back the contractor’s commitment to completing the contract. Subcontractors may also be required to obtain surety bonds to help the main contractor manage risk, particularly if the subcontractor holds a significant part of the job or is a specialised contractor that is difficult to replace.
A surety bond is a three-party agreement whereby the surety company (AIG) guarantees to the obligee (the owner of project) that the principal (the contractor) will perform a contract according to the agreed terms and conditions of the contract, and within the allocated time and budget. Thus, the risks of project completion are shifted from the owner to the surety company.
Surety bonds used in construction are called contract surety bonds. AIG generally issues surety bonds on behalf of contractors engaged in main construction of buildings, ships, shipyards and oil rigs amongst others. There are four primary types of contract surety bonds:
Bid bond guarantees the project owner that the bid has been submitted in good faith and that the contractor intends to enter the contract at the price bid and provide the required bonds (example, Performance bond, Advance Payment Bond) if awarded the contract.
Performance bond guarantees the faithful performance of the contract by the contractor in accordance with the terms and conditions set out in the contract. The project owner is the obligee of a performance bond.
Payment / Advance Payment bond
Payment bond guarantees that the contractor will pay certain workers, subcontractors, and suppliers. Advance Payment bond guarantees the repayment of a cash advance to a project owner, when the owner has advanced funds ahead of scheduled project milestones (in the case of a construction contract), or scheduled product deliveries (in the case of a supply contract). The bond form usually stipulates that the cash advanced will be used in accordance with the terms and conditions in the underlying construction or supply contract. This type of bond provides assurance to an owner that the funds advanced will be used towards for their intended purpose.
The Retention bond
Under the construction projects, project owners usually would hold the retention money and release to the contractors after the expiry of defect liability period. Retention Bond guarantees the contractor will carry out all necessary work to correct the defects during the defect liability period even if full payment has been made by the project owners to the contractors.