a. Advance Payment Bond
It is a guarantee given where money is paid before goods or services are
supplied.
Where client agrees to make an advance payment (sometimes referred to
as a down payment) to a supplier, an advance payment bond will be
required to secure the payment against default by the supplier.
APBs are widely used in a number of industries including the construction
and engineering Industries. In the case of a construction project, the
contractor may request an advanced payment prior to the project
commencing to purchase high value plant or materials that are specifically
required for the project. The client may make an advance payment on the
premise of an Advance Payment Bond being supplied as security if the
contractor fails to fulfil its contractual obligations.
b. Retention Bond
A Retention Bond is usually used in projects to protect the principal in case
the contractor does not properly complete the works/project/deliver the
goods required under the contract. The retention bond is usually a
percentage (%) of the contract value and is paid for by the contractor.
The Retention Bond can be retired after the Certificate of Practical
Completion has been issued for a project.
c. Performance Bond
A performance bond is issued to provide financial cover to a client should
a contractor fail to provide satisfactory performance on a project.
Performance Bonds are usually used in construction contracts. If the
contractor fails to construct the building according to the specifications
laid out by the contract (most often due to insolvency of the contractor),
the client is guaranteed compensation for any monetary loss up to the
amount of the bond. This money covers any losses incurred by the client
like the cost of finding new contractors to complete an unfinished project.
Performance Bonds are usually mandatory in all government projects and
optional for private sector projects. They are usually a % of contract value.
d. Bid Bond
A Bid Bond, is usually a requirement of a tender process. It is submitted
with a tender to indicate commitment by the bidder to commence the
contract with the assurance that the tenderer has the financial
capabilities of accepting the contract for the price quoted in their bid.
This bond protects the project owner in the event of the successful
contractor failing to execute the contract or meet other specified
conditions once they have been awarded. The bond also covers any
additional costs the client incurs in selecting and awarding a replacement
contractor.
e. Warehouse Bond
When imported goods are held in a privately-owned Bonded Warehouse
facility a Warehouse Bond is legally required in advance of duty being
paid.
For the importer, failure to arrange a Bond may result in delays, not
clearing customs and possible fines. For the State (currently represented
by Zimra), the bond is a guarantee that payment for import duties & taxes
will be received on goods held which are dutiable.
f. ATIP Bond
This bond covers importation privileges. Where goods are temporarily
imported and then exported, firms need to be exempted from duty, so
that if goods are not taken out by a specified date, duty will be payable by
the insurance company.
g. Removal In Transit Bond
This bond covers goods in transit to another destination. For example,
goods are imported from South Africa and the end user is in Malawi, the
Zimbabwean freight forwarding company does not have to pay duty with
respect to these goods. A removal in transit bond is put in place to ensure
that goods get to the final customer without duty being paid whilst in
transit.
If, however the goods do not proceed to Malawi, the local government
agency can call upon the bond for payment of the duty.
h. Inward Processing Rebates
This bond covers the importation of raw materials without duty and the
goods manufactured therefrom also being exported.
i. Agents Bond
This bond is usually required by the customs authority from forwarding
and clearing companies who handle goods on behalf of other companies
for the due observation of customs authority regulations and payment.
j. Maintenance Bond
This bond is usually required to cover costs of any defects that are realised
after completion of works. Construction defects might be noticed some
months after completion of a project and will need to be rectified.
k. Railway Ledger Bond
This bond is required by a railway operating company from their clients
that use railway carriage facilities on credit. The bond offers security
against default of the monthly/periodic payments by the respective
clients.
l. Other Bonds
Other bonds are arranged on a case-by-case basis and these include:
Road and Sewer Bonds
Development/Infrastructure Bond
Aviation Maintenance Bond
Supplier Guarantee Bond