Surety bonds are legally enforceable tripartite contracts that guarantee compliance, payment and/or performance.
The issuing insurer provides guarantee, for a premium, in case of a default in execution of a project. It assures one party (obligee) that the entity (principal) responsible for the project or service delivery delivers on the project in a time-bound manner by adhering to the prescribed stipulations.
The principal is also reassured that the surety will assume responsibility for timely payments. If the principal defaults on the performance, the surety insurance provider pays damages to the obligee.
Neerja Kapur, chairman and managing director of New India Assurance Co, said, “Surety bonds will go a long way to revolutionise the dynamics of the infrastructure industry. Surety bond insurance will act as a security shield for infrastructure projects and protect the interests of both the contractor as well as the principal… our surety bonds will provide much-needed financial reassurance to all parties involved in infrastructure projects.”
Last December, Union highways minister Nitin Gadkari had launched the country’s first surety bond insurance for infrastructure projects by the private sector player Bajaj Allianz.
While launching the bonds, Gadkari had said surety bonds can increase the availability of both liquidity as well as capacity of infra players.
Surety bond insurance acts as a security arrangement for infrastructure projects and will insulate the contractor as well as the principal, he had said, adding the product will also cater to the requirements of a diversified group of contractors, many of whom are operating in increasingly volatile environment.