• What is bond insurance?

    This is a commitment by the insurance company to pay interest and principal installments due on a bond in case the bond issuer defaults. There are various types of bonds:

    A Bid or Tender Bonds

    A Tender or Bid Bond is usually for between 2% and 5% of the contract value, and the aim is to guarantee that the contract will be taken up if it is awarded. In the event that the contract is not taken up, then there will be a resultant penalty for the value of the Bond. The Tender Bond usually commits both the Seller and its Bank/Insurance to joining in a Performance Bond if the contract is granted. A Tender Bonds will serve to not permit the submission of frivolous tenders.

    Performance Bonds

    A performance bond is usually issued by a bank or insurance company to guarantee satisfactory completion of a project by a contractor. The amount that is payable will be around 10% of a stated percentage of the contract price. This will usually be issued when a Tender Bond is cancelled. The Bonds act as financial guarantees and have no warranty that a bank will complete on a contract in the event that the customer fails to do so.

    Advance Payment Bonds

    This will provide protection to the Buyer when an advance or progress payment is made to the Seller prior to completion of the contract. The Bonds undertake that the Seller will refund any advance payments that have been made to the Buyer in the event that the product is unsatisfactory. This is typical in large construction matters where a contractor will purchase high-value equipment, plant or materials specifically for the project. The bond will protect in the event of failure to fulfill its contractual obligations e.g. due to insolvency. They will usually be on-demand bonds, meaning that the value set out in the bond is immediately paid on demand, without any need for preconditions being met. This is in contrast to a conditional bond where there is only liability if there is a breach of contract.

    Custom Bonds

    Custom Bonds vary in nature but they all guarantee payment of duty to Kenya Revenue Authority in case the insured fails to meet the conditions upon which a waiver of duty was granted.

    Types of Custom Bonds

    CB1 – Bond for delivery of perishable or other goods prior to payment of duty
CB2 – Bond for removal of goods from one port or place to be examined and entered at another port or place.
CB3 – Bond for the warehousing of goods or removal of warehoused goods
CB4 – Bond for exportation
CB5 – Bond for shipment of stores
CB6 – General Bond for security of warehoused goods
CB7 – Bond for goods to be shipped prior to entry
CB8 – Transit Bond
CB9 – Transshipment Bond
CB10 – Bond for the re-exportation
CB11 – Bond for Custom Agents
CB12 – Bond for conveyance of goods subject to customs control
CB13 – General Bond for ensuring compliance with customs laws and
       securing duties on goods deposited into an in-land container depot
CB14 – Bond for removal of goods from or to an export processing zone