Surety Bond

Surety Bond is a written agreement as an additional agreement between the Surety Company and the Principal to cover the interests of the Obligee. If the Principal fails to execute its obligations under the applicable contract, Surety will provide compensation to the Obligee at a maximum cover value.

The parties involved and their relationships in Suretyship are described as follows:

Principal, the executor of the work who gets a job from the owner of the job (Obligee) and requires a guarantee from the guarantor (Surety)

  • In Construction Contract Bonds, the Principal is the building constructor
  • In the Supply Contract Bond, the Principal is the supplier of goods
  • In a Custom Bond, the Principal is the importer who is subject to the obligation to pay Import Duties

Obligee, is the owner of the work who submits the implementation of the work to the Principal which requires a guarantee from a third party (Surety Company). Obligees can be individuals, companies, government agencies or other institutions.

Surety, is a loss insurance company that issues guarantees (Surety Bonds) at the request of the Principal to guarantee payment to the Obligee if the Principal is unable to complete the contract between the Principal and the Obligee.

Type of Surety Bond

Cover the obligee if the principal who has been declared the winner of the tender is not willing to sign the contract or is unable to submit the performance guarantee within the period determined by the obligee.

Bid Bond Value : 1 % - 3 % of Tender Value

Cover the obligee if the principal who has signed the work execution contract resigns or terminates the contract unilaterally or jointly from both parties, namely between the obligee and the principal.

Performance Bond Value : 5% - 10% of Contract Value

Cover the obligee if the principal cannot return or calculate the advance received at the beginning of the contract to the obligee until the project is completed.

Advance payment Bond value: maximum 30% of the Project Value

Cover the obligee if the principal does not carry out his obligations to repair the damage that occurs after the execution of the work is completed according to the provisions in the contract.

Maintenance Bond Value: maximum 5% of Project Value

Minimum Data Requirement

  1. Fill out the Application for Issuance of Guarantees (SPPJ)
  2. Company Deed & Amendment Deed
  3. Company Profile along with Business Permits
  4. Audited Financial Statements for the last 3 (three) years
  5. Current Account Statement that is active (current account used for project transactions) for the last 3 (three) months
  6. Copy of Tender Invitation (for Tender Guarantee applicants)
  7. Copy of Tender Winner’s appointment letter and Work Order or Contract Letter (for applicants for Performance Guarantee)
  8. Copy of Contractor Agreement Letter (for applicants for Down Payment Guarantee)
  9. Copy of News Handover of Work 1 (for applicants for Maintenance Guarantee)
  10. Indemnity Agreement that has been signed and ratified before a Notary
  11. Loss History

Claim Procedures

  1. The Oblegee submits a claim to the Surety Company.
  2. Attach the following documents:
  3. Original Surety Bond certificate
  4. Warning letter from Oblegee to Principal
  5. Termination of employment from Oblegee.
  6. The Surety Company contacted the Principal, checked the truth, and the ability to take responsibility.
  7. The Surety Company contacted the Oblegee and if necessary simultaneously held a triangular meeting to discuss the amount of losses suffered by the Oblegee and the calculation of the work that had been done by the Principal.
  8. Payment of compensation from Surety Company to Oblegee.
  9. Recovery from Principal to Surety Company.