A bond also known a ’financial guarantee insurance’ compensates third parties against default or loss suffered as a result of failure of the insured to perform the task as per their contract.
Types of bonds
- Performance Bonds: It is issued to one party as a guarantee against failure of the other party to adhere to obligations in the contract. This is to ensure/guarantee the contractor completes the designated projects.
- Immigration/Security Bonds: They are issued to non-citizens before they are given work permits.
- Bid bonds/Tender Bonds: This bond provides a guarantee to a project owner that a bidder will complete the allocated work if chosen. In the absence of bid bonds, project owners will not be able to provide a guarantee that a bidder they chose for a project would be able to finish the job correctly. A performance bond will replace a bid bond when a bid is accepted and a contractor proceeds to execute the project.
- Customs/Import Bonds: These guarantees that, dutiable goods on which duty has not been paid do not find their way into the local market before duty is paid. Duty has to be paid first before such goods are sold in the market. Customs bonds are given for goods in transit through the country or for those produced in duty free zones targeting the export market. Import bonds are given to cover duty for goods imported into the country.