Contract Bonds (Surety Bonds), Contract Bonds, Surety Bonds, Release Bonds, Maintenance Bonds

Contract Bonds (Surety Bonds)

Contract Bonds are primarily used in the construction and infrastructure sectors to cover performance obligations and are a flexible alternative to bank guarantees. Examples of commonly issued bonds include:

Performance Bonds provide security to the beneficiary against contractor non-performance or default, and supports contractor obligations during the contract period.

Advance Payment Bonds secures the beneficiary’s position on funds advanced to the contractor for capital purchases or site preparations.

Bid Bonds supports a contractor’s bid or tender to ensure they enter into the contract if accepted.

Other bonds include Retention Release Bonds, Maintenance Bonds and Off-site Material Bonds.

Key Benefits of Bonds

Flexibility

• Genuine alternative to traditional secured guarantee bank facilities.
• Can be designed to meet the bonding program required as well as operating alongside traditional banking lines of credit.

Frees Up Assets

• The bonding facility is unsecured versus the traditional banking secured requirements.

Improves Liquidity

• Allows the flexibility to leverage off your capital base (better use of your balance sheet) enhancing working capital and liquidity opportunities.
• Frees up your present banking lines of credit.

Removes Growth Restraints

• Provides certainty of capacity options especially in the current economic environment.
• Avoids the financial institutions rationing of credit which could squeeze a businesses ability to grow.
• Contractors can take on more projects without being restricted by security requirements.

Equal to Bank Guarantees

• Issuers generally carry as high if not higher S&P ratings then financial institutions.
• Bonds are as safe as a bank guarantee.
• Bonds are widely accepted by government, institutions and principals.

Are You Eligible?

As a quick guide, a bonding facility is suitable for firms meeting these criteria:

• Company must turnover at least $50m per annum.
• Must have a net tangible worth of $5m.
• Positive cash flow.
• Positive working capital.
• At least 3 years of continuous profitability.
• And have been operating for at least 3 years.

In a application we will look for:

• A well developed business
• A solid track record
• Evidence of professional financial and operational management
• Demonstrated capital retention within the busienss
• Technical ability to deliver on contractual requirements
• Control over exposure to existing projects