Bonds are important tools for risk mitigation. But it’s important to know that bonds and insurance are two different types of tools. Bonds are a form of credit in insurance and if claimed, the insured will need to pay back like any other form of credit. It’s usually required by either a government or company as a guarantee that an action will be completed as needed.
Types of Bonds
A performance bond is one of the requirements when applying for high value contracts. It assures a clients of the promise of due performance and lessens the cost of redoing the work in case the requirements of the client are not met. The value of the bond is usually 10% of the contracts work.
More often than not when applying for a tender you are required to have a bid bond otherwise known as tender bond. This bond helps to demonstrate commitment to the terms of the bid. In the event the terms of the bid are breached after winning the tender, the bond will be claimed to cover the cost of reopening the tender.
Custom Bonds are form of bonds required by government as a promise to fulfill certain conditions to avoid tax evasion. There are three types of custom bonds; warehouse bond, transit bond and manufacturing bond.
A warehouse bond is used by importers to store goods in a bonded warehouse as a way to assure the custom department of duty payment, once the goods are shipped out of the warehouse. If goods are removed within the agreed timelines with the bonded warehouse and the duty is settled, then the bond is canceled and returned to the insurer. Suppose one fails to pay duty after removing goods from the warehouse, the custom department will call the bond to cover the pending import duty charges, which will be paid by the insurance company.
As a logistic company, sometimes you may need to move goods through Kenya to get to another country. The transit bond enables you to transport your goods through a country with the guarantee that the goods will leave the country to the appropriate destination.
This bond allows one to import raw materials, equipment or machinery for manufacture of exporting goods only. It binds a person into paying import duty in the event the finished goods are not exported but sold in the local market. The value of this bond depends on the expected value of the manufactured goods.
The immigration bond is used to facilitate the legal stay of a non-resident in Kenya if not on a tourist or student visa. You have the option of getting an immigration bond as security, in order to cater for the cost of deportation in case the need arises.