What are Bonds and Insurance Guarantees

Bonds are not actually a form of insurance but are closely related. There are various kinds of bonds available, most of which are designed to give a financial guarantee that an agreement will be fulfilled or a financial penalty will be paid.

Bonds are commonly taken by construction companies as a requirement of their contract or as part of their tender. Bonds are also used as guarantees by suppliers and tenants. 

Bonds are available from some banks, but they generally come at the expense of your overdraft, therefore restricting cash flow and working capital so it can be advantageous to get them from a broker.

The most common kinds of bond we see are:

  • Performance Bonds. These secure the performance of a contract or contractual obligation, normally covering 10% of the contract value.
  • Advance Payment Bonds / Guarantee. These guarantee to an employer that, in the event of a breach of contract by the contractor, payment made before the contract commenced can be recovered under the bond, less any amounts certified under contract.
  • Retention Bonds. These allow the employer to release retained monies held under a contract to the contractor to help with the contractor's cash flow.
  • Street Works Bonds. These guarantee the completion and maintenance of roads and sewers until they are adopted for public use by the local authority.
  • Supplier Payment Guarantees. This gives a guarantee to suppliers of equipment, services or materials enabling you to manage capital and cash flow. It can also be an alternative to requesting credit from suppliers.
  • Tenant Default Guarantees. This can be used to reassure landlords that their tenant will not default on their rent. It will also give tenants an alternative to a large rent deposit on a property

For advice or a quote for bonds or guarantees please call 01905 21681 or contact us.


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2 Foundry Street, Worcester, WR1 2BJ tel:01905 21681 | Registered in England No 1167560

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