Bonds in the world of commerce, construction and business in general

 All Bonds stem from the need to endorse a contractual obligation. They are deemed an instrument with which the issuer guarantees the beneficiary entity the complete and timely fulfillment of the obligations assumed by the contractor upon signing a contract.

There are three parties involved in a bond:
• Bonder (insurance company, guarantor)
• Beneficiary (the insured, contracting party)
• Contractor (guaranteed party, client)
If the contractor is not able to meet all the contracted obligations, the issuer must honor his/her commitment with the beneficiary by paying the bond.

OUR PRODUCTS

• BID BOND
Guarantees the signing of the contract between the contractor and the contracting party according to the conditions and amounts established in the proposal presented.
For the public sector, in agreement with the Law of Public Contracting, the insured value corresponds to 2% of the amount of the proposal, while for the private sector, the contractor should present the bond according to the percentage stipulated in the bid.

Frequent questions

• How long is this policy in effect?
This guarantee is valid for a minimum of 90 days.
For the private sector, the length of time it is valid will depend on the stipulations of the bid.
• How long should it be in effect?
This guarantee is to remain valid until the beneficiary and the contractor who has been awarded the contract subscribe the contract.
• How can this bond be released?
This guarantee can be released by presenting the original policy or a document signed by the beneficiary indicating that the contractor has not been adjudged.
The guarantee of offer reliability expires at the time of subscription (signing) of the contract or also upon the expiration of its valid time period.
• When can it be executed?
This guarantee is executed when the contractor refuses to subscribe the contract under the conditions of its proposal.
• PERFORMANCE BOND
Once the contract has been conferred, this bond guarantees the complete and timely fulfillment of each and every obligation stipulated in the contract in regard to the time and quality agreed upon by the contractor.
For the public sector, in agreement with the Law of Public Contracting, the insured value corresponds to 5% of the amount of the contract, while for the private sector, the bond is equal to the percentage agreed upon in the contract, with the maximum amount that should be accepted being 10%.
• How long is this policy in effect?
The length of time this bond is valid is determined by the time limit of the contract. It begins with the signing of the contract and will be valid until its final and/or only reception. Its insured value should be maintained at 100% of the guaranteed value until the valid time expires.
• How long should it be in effect?
It should be valid until the final reception of the work, which for the public sector is formalized by a final act signed 180 days (six months) after the provisional reception. In case of contracts for provision, inspection, consultation, etc., it is customary to have only one reception. For contracts in the private sector, stipulations in the contract will be the guide.
• How can this guarantee be released?
This guarantee can be released by returning the original policy with the presentation of the final or only act of reception or with a certification issued by the beneficiary entity.
• When can it be executed?
This guarantee can be executed because of unfulfillment of the contract, its unilateral termination or in case it has not been renewed opportunely when requested by the beneficiary and/or the contractor.
ADVANCE PAYMENT BOND:
This guarantee assures the correct use of the resources the beneficiary entity makes available to the contractor as an advance for the execution of the contracted work.
It is feasible to grant this bond to the public sector as well as to the private sector, and in both cases, the policy is issued for the total amount received as an advance payment.
• What percentage should I receive in advance?
The advance payment can fluctuate between 30% and 70% of the amount of the contract. It is not a percentage regulated by the law of public contracting and depends on what the contract and the contracting entity stipulate.
• How long should it be in effect?
The guarantee should remain in effect until the total amount of the advance has been amortized, in accordance with the beneficiary’s advance work timetable. The amortization of timetables will be seen reflected directly in an adjustment of the insured amount of the advance policy in each renewal.
• How can this guarantee be released?
This guarantee can be released with the presentation of the original policy, with the signature of the provisional act of reception or with the beneficiary’s certificate which indicates that the total advance has been received.
• When can it be executed?
This guarantee can be executed when the funds received as an advance have been utilized for purposes other than what is stipulated in the contract or in case it is not opportunely renewed when requested by the beneficiary and/or contractor.
• Correct Performance of Work and Good Quality of Materials
Guarantees repairs or change of those parts of the work in which defects in construction, poor quality or unfulfillment of specifications are detected and attributed to the contractor. Generally applicable to construction.
The insured value is 5% of the amount of the contract and “does not replace the guarantee for Faithful Fulfillment of Contract”. For the private sector, this policy is issued for the amount stipulated in the contract, but not for more than 10% of the amount of the contract.
• How long is this policy in effect?
The length of time this guarantee is valid is stipulated in the contractual period of the contract.
• How long should it be in effect?
This bond should be in effect until the provisional reception of the work has taken place.
• How can this guarantee be released?
This guarantee can be released by presenting the original policy or with the signature of the provisional act of reception.
• When can it be executed?
This guarantee can be executed when the materials used in the work are not the quality agreed upon or when it has not been renewed in due time at the request of the beneficiary and/or the contractor.
Proper Use of Letters of Credit
If the manner in which the advance is granted (importation of declared goods) is carried out by opening a Letter of Credit, this assures that the contractor will fulfill the conditions declared and stipulated in it.
• How long should it be in effect?
The guarantee of the Good Use of the Letter of Credit will remain in effect for 100% of the insured amount until the time of provisional reception of the work or the provision of supplies.
• How can this guarantee be released?
This guarantee can be released upon the presentation of the original policy or with the act of provisional reception of the properties detailed in the contract.
• When can it be executed?
This guarantee can be executed when the imported materials or supplies are not those stipulated in the contract or in the offer.
• Customs related Guarantee
Customs guarantees are expedited exclusively for the Corporación Aduanera Ecuatoriana (Ecuadorian Customs Corporation) which acts as the beneficiary entity. They are normally utilized for:
o Payment of tariff rights
o Fulfillment of obligations and provision of customs or industrial deposits
o Temporary internments
o Temporary exportations
o Temporary admissions with re-export in the same condition
o Lack of documentation for the merchandise to clear customs
• What law governs this bond?
This bond is governed by the Customs Law.
Customs Guarantees are unconditional, irrevocable and for immediate collection.
• How long should it be in effect?
In order for Customs to make effective a customs guarantee, an additional period of thirty days must be added to the length of time stipulated as valid.
• How can this guarantee be released?
This guarantee can be released by presenting the original policy and all its renewals properly canceled by the Corporación Aduanera Ecuatoriana (Ecuadorian Customs Corporation).

Characteristics of the Bonds

UNCONDITIONAL. The insurance company cannot contest the payment for situations not foreseen in the Law.
IRREVOCABLE. The insurance company cannot annul granted coverages.
IMMEDIATE COLLECTION. It is the obligation of the insurer to make the payment as soon as the beneficiary has presented the required documentation.