A Bid Bond is purchased when a contractor, or the ‘principal', is bidding on a tendered contract with public authorities and/or private owners. The Bid Bond prequalifies the principal and provides the necessary security to the owner or general contractor, necessitating a guarantee that the principal will enter into the contract, if it is awarded. In essence it provides a guarantee that the Bidder (Constructor), if awarded the contract will enter into the said agreement and furnish the prescribed Performance Bond. A cash deposit is required, which is subject to full or partial forfeiture, if the winning contractor fails to either execute the contract or provide the required performance and/or Payment Bonds.
A Performance Guarantee is issued by an insurance company or bank to a contractor to guarantee the full and due performance of the contract according to the plans and specifications laid out. A project requiring a payment & performance bond will usually require a bid bond, in order to qualify to bid for the project. A payment and performance bond will then be required of the winning bidder as a security to guarantee job completion. Should the contractor fail to construct the building according to the specifications laid out by the contract, the client is guaranteed compensation for any monetary losses up to the amount of the performance bond.
A Maintenance Bond is a guarantee against defective workmanship or materials after the completion of a project. Maintenance Bonds often incorporate an obligation guaranteeing ‘efficient or successful operation’ or other obligations of like intent and purpose. Maintenance guarantees are also admitted in place of the retainer of up to 10%.
An Advance Payment Guarantee binds the supplier, to use the advance payment for the purpose stated in the contract between the buyer / employer and the supplier. An advance payment provides the supplier with funds to purchase equipment or components, and/or to make other preparations. In general, the advance payment guarantee should contain a reduction clause that automatically reduces the amount owing in proportion to the value of the (partial) delivery. It only becomes effective once the advance payment has been received, and is only issued in conjunction with Performance Guarantees.
There is an increasing demand for supplier guarantees within the construction industry for the provision of steel and other building material to contractors and industry players. Credit insurance policies are currently available to buyers only and not suppliers.
Temporary Importation Warehouse Bond
Where goods are temporarily imported and then exported, firms need to be exempted from paying duties. The issuance of a Temporary Importation Bond is an undertaking by the Guarantor that if goods are not returned to the country of origin by a specified date, the relevant duties (limited to the value of the Guarantee) will be payable by the Guarantor.
SARS (Customs) require a bond on warehouses storing imported goods to ensure that the predetermined duty is paid once the goods have been cleared and removed. Failure by the firm to pay the duties timeously will result in the Bond being called up and the Guarantor will be liable for the duties.
Removal in Transit Bonds
These bonds cover goods in transit to another destination. For example if goods are imported from Zimbabwe and the end user is Swaziland, the South African freight forwarding company does not have to pay duty with respect to these goods. A removal in transit bond is put in place to ensure that goods get to the final destination without duty being paid whilst in transit.
Inward Processing Rebates
This bond covers the importation of raw materials without duty and the goods manufactured there from also being exported.
This bond is required by Customs from forwarding and clearing companies who handle goods on behalf of other companies for the due observation of SARS regulation and payment.