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A Performance Surety Bond provides a financial security to the beneficiary, the project principal, against a contractor not performing, or defaulting, on a contract during the construction phase or defects period.
A Performance Surety Bond provides a financial security to the beneficiary, the project principal, against a contractor not performing, or defaulting, on a contract during the construction phase or defects period.
The bond facility limit is typically $2m plus, against which individual performance bonds are issued.
Performance Surety Bonds are widely accepted by the private and public sectors, (including federal, state and local government departments), as an alternative to bank guarantees.
There are a number of key benefits of surety bonds across a range of industry sectors.
The key benefits are:
Release your cash for growth (i.e. take on more contracts), acquisitions or debt reduction
Unsecured, no tangible asset or collateral required
Improves your balance sheet and liquidity
Allows for greater flexibility and opportunities
Works alongside your existing bank facilities
Risk mitigation, less exposed to bank credit decisions or reviews
The typical industry sectors are:
Construction
Engineering
Mining
Oil and gas
Building
Other types of Bonds are:
Bid / tender bonds
Advance payment bonds
Cancellation of import/export licences
Off site materials bonds
Who can qualify for a Bond?
Typically a turnover in excess of $20 million
Must have a minimum net tangible worth of $3m
Positive cash flow and working capital
At least 3 years of continuous profitability
Operating for at least 5 years
A surety bond is a financial guarantee issued to support performance obligations under a construction contract. It ensures one party will meet its contractual obligations. If they fail, the surety provider compensates the beneficiary.
There are three parties: the contractor/principal (you), the beneficiary (the party requiring the bond), and the surety (the provider). Bonds are issued to support performance obligations under the contract, and the surety guarantees your performance or obligations up to the bond amount.
They are commonly used in the construction sector to support performance obligations under a contract and provide financial security.
Common types include Performance Bonds, Payment Bonds, Maintenance Bonds, Off-Site Material Bonds, and Advance Payment Bonds.
Companies undertaking larger contracts that include performance obligations (mostly construction projects) are often required to provide surety bonds.
A surety bond typically does not require term deposits, preserving working capital. Bank guarantees are often secured against credit lines and can impact available cash and working capital.
The premium is usually a percentage of the bond value and depends on the applicant’s financial strength and risk profile, typically around 2–4% per annum of the bond value.
A facility approval generally takes around 4–5 weeks. Once the facility is in place, individual bonds can usually be issued within 24–48 hours.
The surety pays the bond value on demand to the beneficiary and then seeks recovery of the claim amount from the contractor/client.
Yes. Because they do not tie up cash or bank facilities, they help preserve working capital and can support business growth.
Yes. Many larger government and major project contracts require bonds to ensure contractual performance obligations are met.
Typically required information includes financial statements, WIP reports, tender pipeline information, cash flow forecasts, a company capability statement, details of banking arrangements, and other relevant business information.
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