What are Bonds

Bond insurance is a type of insurance whereby an insurance company guarantees the principle payments of interest in the event of a payment default by the assured.

1. Bid Bond

A bid bond guarantees the principle (project owner) that the insured (contractor) will comply with a bid contract. A bid bond assures the principle (project owner) that the insured (contractor) has the ability to complete a project to the specifications outlined in the submitted bid.

It pays out to the principle should the insured back out from a bid after the work has been won.

2. Performance Bond

A performance bond is a surety bond that protects the principle (project owner) against an insured’s (contractor) failure to complete a project as agreed. Performance bonds effectively “bond” specific agreements outlined in a construction contract. If the bonded obligations aren’t met, the principle can claim financial damages. Performance bonds are typically required as part of a bid bond.

3. Customs Bond / Regional Customs Transit Bond

A Customs Bond is “a contract which is given to ensure the performance of an obligation imposed by a law or regulation.” The parties involved in the bond contract are the importer (insurer), Surety Company (insurance company) and obligee (CBP) Customs and Border Protection.

The primary purpose of a Customs Bond is to guarantee the payment of import duties and taxes, as well as to assure compliance with all laws and regulations governing the entry of merchandise from foreign shipping points into the Uganda.

4. Advance payment bond

If the Principle agrees to make an advance payment (sometimes referred to as a down payment) to a contractor/supplier, a bond may be required to secure the payment against default by the contractor/supplier. This is referred to as an Advance Payment Bond (APB).

Typically on a construction project an advanced payment bond will be required by the principle if the contractor requests advance payment to help them meet significant start up or procurement costs that may have to be incurred before construction begins.

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