Chapter 5

Question 1

Surety

Answer 1

The state of being sure, certain, secure

Question 2

Suretyship

Answer 2

Guaranteeing performance made by one to another

Question 3

2 main classes of bonds issued by surety company

Answer 3

Fidelity
Surety

Question 4

Fidelity bond

Answer 4

To ensure employers would be protected from the dishonest acts of their employees

Question 5

Surety bond

Answer 5

Undertaking by one party (surety) to become accountable to another party (Obligee) for the performance by a third party (principal)

Question 6

3 C’s that form the basis of credit appraisal

Answer 6

Character
Capacity
Capital

Question 7

How are surety bonds like banks

Answer 7

Surety does not bond those who cannot perform obligations where banks don’t lend to those who don’t meet eligibility requirements

Question 8

Three parties to a contract

Answer 8

Principal
Obligee
Surety

Question 9

Benefit of suretyship to the principal

Answer 9

Confidence gained from fact that surety is satisfied with their abilities

Question 10

Benefit of suretyship to obligeee

Answer 10

Confidence needed to undertake various projects

Question 11

Principal

Answer 11

The person primarily liable

Question 12

Obligee

Answer 12

The party to whom someone else is obligated under a contract

Question 13

Surety

Answer 13

One who undertakes to pay money or to do any other acts in event that his (the) principal defaults.

Question 14

3 characteristics of the guarantee made by the surety

Answer 14

• Is a promise made to the Obligee and not the principal
• Is a secondary obligation arising in on the default of the principal
• Surety’s duty to pay arises upon default of principal

Question 15

Statutory bond

Answer 15

One that is required by a municipal ordinance, or federal or provincial regulation or statute.

Question 16

Non statutory bond

Answer 16

Not required by law but flow from the contract agreement between the parties

Question 17

Two methods for surety to collect amounts owed by the principal

Answer 17

-Assignment to surety of obligee’s rights
-Right of subrogation

Question 18

No losses expected

Answer 18

Surety expects not losses to occur

Question 19

Bond limit (penalty)

Answer 19

Reflects amount of credit given to principal by surety

Question 20

Bond premium

Answer 20

Sum charged for pre-qualification and other company expenses

Question 21

Contract bond

Answer 21

Intent is to guarantee the fulfillment of certain obligations required under public and private contracts

Question 22

4 categories of bonds

Answer 22

Contract bonds
Judicial bonds
License and permit bonds
Miscellaneous bonds

Question 23

Bid bond

Answer 23

Used in large contracts, calling for tenders or bids from interested parties

Question 24

Surety’s consent

Answer 24

Assure owner that if the principal is the successful bidder, surety will issue other bonds required to ensure performance of the contract

Question 25

Reasons for default under a bid bond

Answer 25

Error in judgment Mistakes in Arithmetic

Question 26

Supply bond

Answer 26

Agreement to furnish & deliver supplies at an agreed price

Question 27

Performance bond

Answer 27

Guarantees performance of contract with terms and conditions and any fault work will be corrected and defective materials replaced within a 1 yr period after completion.

Question 28

Labour & material payment bond

Answer 28

Guarantees that the sub-trades and suppliers will be paid for the work and materials that enter into the project.

Question 29

Maintenance bond

Answer 29

Guarantee given to Obligee that the principal will fulfil the warranty obligations stated in the contract.

Question 30

3 risks faced by owners when undertaking a construction project without protection bond

Answer 30

1. Refusal or inability of best bidder to enter contract 2. Failure of contractor to complete project at contract 3. Inability of contractor to pay subcontractors and suppliers

Question 31

Two methods of tender deposits acceptable when tenders at called

Answer 31

Bid bond Certified cheque

Question 32

5 causes of involuntary default

Answer 32

Insolvency Imcompetence Banks refusal to grant credit extension Delays Failure of subcontractor when no bond is in place

Question 33

License and permit bond

Answer 33

Required as a requisite to apply for any licenses or permits

Question 34

Judicial bond

Answer 34

Prescribed by statue and depending on matter, may be filed with probate court or court of equity

Question 35

Plaintiffs and defendants bonds

Answer 35

In the event the plaintiffs action should fail, the bond guarantees the defendant(Obligee) that the plaintiff (principal) will pay any damages including court costs and vice versa

Question 36

Attachment bond

Answer 36

If court decides against the plaintiff, defendant will be paid damages as the result of having such property attached

Question 37

Release of attachment bond

Answer 37

Guarantees that if the matter is decided in the plaintiffs favour, the defendant will return property and pay any damages and court costs

Question 38

Injunction bond

Answer 38

To ensure that the defendant in an action performs or refrains from performing som act or function

Question 39

Appeal bond

Answer 39

Guarantees the payment of all court costs on the appeal.

Question 40

Fiduciary bond

Answer 40

Requires the fiduciary be bonded for the faithful performance of those duties as prescribed by law.

Question 41

Types of miscellaneous bonds

Answer 41

-Customs and excise bonds -Lost document bond -Consignment bond -Utility payment bond -Land restoration bond

Question 42

Net worth calculation

Answer 42

Networth = assets - liabilities

Question 43

Profitability

Answer 43

Analysis of working capital and net-worth

Question 44

Working capital

Answer 44

Amount of funds available to pay continuing business operating expenses

Question 45

Percentage of completion method

Answer 45

Preferred accounting method- earnings from work completed are calculated as a % of total contract price

Question 46

2 types of judicial bonds

Answer 46

Court bonds Fiduciary bonds

Question 47

Financial guarantees

Answer 47

Grant the license or permit against monetary damages resulting from the failure of licensee to comply with statutes regulations, ordinances or code switch control their activities