A bond is a financial guarantee. It compensates the third parties against loss suffered as a result of failure of the insured to perform the task as per the contract. Types of bonds:
- Performance Bonds: They are used when a contractor fails to complete a contractual work.
- Immigration/Security Bonds: They are issued to non-citizens before they are given work permits
- Bid bonds/Tender Bonds: This bond ensures that on acceptance of a bid by the customer the contractor will proceed with the contract and will replace the bid bond with a performance bond. Otherwise, the guarantor will pay the customer the difference between the contractor's bid and the next highest bidder. This difference is called liquidated damages, which cannot exceed the amount of the bid bond.
- Customs/Import Bonds: These guarantees that, dutiable goods on which duty has not been paid do not find their way into the local market before duty is paid. Duty has first to be paid before such goods are sold in the market.