Types of bonds
Depending on your contract or industry requirement, you may need one of the following:
- Bid bond (propuesta): backs the obligations of the bid when required. Check the bidding documents for the percentage, calculation base and validity; do not automatically apply 10% to every tender.
- Performance bond (Cumplimiento): guarantees the execution of the contract. The required percentage is set by the bidding terms or the business contract you are entering into (for construction or public works, it is usually substantially higher than for standard goods and services).
- Advance payment bond (Pago anticipado): backs the proper use of the prepayments or advances provided by the contracting entity.
How your company is evaluated
A surety bond is not quite like other types of insurance; it is a credit guarantee instrument. The insurance company evaluates your financial statements, experience, and technical capacity before opening a bonding line, and it may request counter-guarantees.
Once your bonding line is open, issuing each subsequent bond is relatively fast. It’s not like underwriting a brand new policy every time you need a new bond for a project.
How much it costs
The premium can be a small annual percentage of the guaranteed amount, but it heavily depends on the type of bond, the term, your company’s history, and your financial strength. Carefully reading the bidding terms or the specific business contract you’re entering into, alongside maintaining impeccable documentation, prevents disqualification or issues due to formatting errors.
Frequently asked questions
Does a formatting error in the bond disqualify me?
Minor errors can be correctable if the essential data is correct, but the bidding terms or contract requirements always rule. The most practical approach is for you to personally review the bond against the bidding terms or contract, and call your broker if you need help or spot a discrepancy.
Can I use a bank transfer or bank guarantee instead of a bond?
Permitted guarantees depend on the governing rules and the bidding documents or contract. Confirm the instrument, issuer and delivery requirements before substituting a bond; an ordinary bank transfer does not by itself establish a valid guarantee.
How long does it take to open a bonding line?
It varies. It can take a couple of days or a couple of weeks. It completely depends on the specific situation, the completeness of your documentation (like audited financial statements and references), and the complexity of the credit evaluation.
