The surety bond is a financial guarantee that the contractor must provide to ensure the proper performance of a public contract. The contractor is the company or person who has won the public contract and will perform it at a certain price. The principal is the government agency that issued the contract for a particular need, such as the construction of a bridge, the delivery of office supplies or the organization of an event.
The bond is usually required by the client in the specifications or contract documents. The amount of the bond is automatically set at five percent of the value of the contract, unless the client sets a lower percentage or decides not to require a bond. The surety bond must be posted within the time specified in the assignment documents, otherwise the client may break the assignment.
The bond may be in cash, securities or a bank guarantee. The contractor can deposit the surety bond with the Deposit and Consignment Office, a service of the FPS Finance that offers this service free of charge. The contractor may also use a financial institution or an insurance company to post bail.
The bail shall be released to the contractor upon completion and delivery of the job, or upon expiration of a specified period of time. However, the principal may withhold all or part of the bail if the contractor fails to fulfill its obligations or causes damage. The principal may also rely on the bail to pay any fines or damages.
Bail is thus a financial guarantee for the principal and an obligation for the contractor in a public contract. The bond serves as a security for the proper performance of the contract and as compensation for any deficiencies or damages.
