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When a “Good Word” Isn’t Enough—Get a Surety Bond

—Ask about Surety Bonds from DIC in all of GCC

Is there a guarantee that a contractor will finish the job as per the agreed terms? What recourse do you have if they don’t?

Let’s flip the situation and examine what happens if you are the contractor. What if the contract hinges on you providing a guarantee that the work will be completed?

Both situations above are circumstances where just a verbal promise is not good enough. Customers today need a formal and legally binding guarantee or surety that the work will be completed as per the agreed terms.

This is where a Surety Bond becomes a useful tool. DIC’s Surety Bond is a security instrument that provides protection against probable loss resulting from breach of contractual / legal obligations. It can be for damage or loss caused or failure to perform /complete actions as per agreed terms.

It is often confused with insurance, but it is very different in that if a Bond is called and the Insurer pays, the contractor has contractually indemnified the Surety against loss and therefore must make the Surety whole for any payments made.

A surety Bond is actually contract of guarantee that involves three parties: 

  • Contractoris the party that purchases the bond to guarantee performance / completion of work. A contractor can be an individual or a company.
  • Employer is the party employing the contractor and requires the surety bond to be provided.
  • Surety is the insurance company that acts as a guarantor and compensates the employer in theevent that the contractor defaults.

Types of Surety Bonds Available through Dubai Insurance Company

  • Performance Bonds: These take the following forms:

    1.Commercial Bonds: Commercial Bonds are used by business owners, entrepreneurs and other working professionals. These bonds are   essentially designed to ensure that the professionals will perform their job based on laws and industry regulation that govern them. For instance, these bonds may apply to auto dealers, notaries, travel agents, etc.

    2.Contract Bonds: Contract Bonds are meant for construction professionals. These bonds are used to create a guarantee that construction professionals will fulfill their contractual obligations towards the project.

  • Bid Bonds: A Bid Bond guarantees that the contractor will enter into a contract with the employer for the amount of the agreed and accepted bid. If the contractor fails to do so, then the Surety pays the difference between the contractor’s bid price and the next lowest price, subject to amount of the bond.
  • Advance Payment Bonds: Advance Payment bondis a guarantee provided by the contractor to the employer who makes an advance payment for the contract. The guarantee also provides that the advanced sum will be returned if the agreement terms are not fulfilled.

In the GCC the function of Surety Bonds is more often than not fulfilled by Bank Guarantees. But such guarantees are becoming more difficult to obtain and also increasingly expensive. Further, such guarantees can reduce the outstanding working capital lines of financing that the banks have provided the contractor, and hence, akin to business practices in the West, Surety Bonds are slowly but surely findinga growing acceptance in the GCC.

For further details or assistance, please e-mail us at :

 info@dubins.ae

call us at our toll-free number :

 800 (DUBINS) 382467

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