CAIB 3 - Chapter 5
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1. Describe the three "C's" of i) Character - This involves studying company's management
credit appraisals and out- performance
line factors considered ii) Capacity - This involves reviewing company's past job performance
for each. iii) Capital - This involves reviewing company's financial ability to finish
work on hand as well as job for which bonding was requested
2. How are surety compa- Sureties are similar to banks because they are being ask to lend credit
nies similar to banks?
3. Define the three parties i) Surety - Organization who undertakes to pay money or to do any
of surety agreements. other act in event that his principal fails therein
ii) Obligee - Is the party to whom someone else is obligated under a
contract
iii) Principal - Organization or person primarily liable
4. What are three charac- i) Promise made to obligee, not principal
teristics of the promise ii) Secondary obligation occurring when principal defaults
made by sureties? iii) Obligation of surety to obligee happens as soon as principal de-
faults
5. Explain the following Surety companies based fees on belief that they
characteristics of surety will not incur any losses. When principal does default, surety believes
bonds. i) No losses ex- they have adequate back up positions to cover guarantee to obligee
pected
6. Explain the following Surety bonds cannot be cancelled by surety company once issued.
characteristics of surety Surety bonds stay in effect as long as principal has not completed their
bonds. ii) Indeterminate obligations
length and non cance-
lable
7. Explain the following This indicates amount of guarantee surety is providing to obligee
characteristics of surety
1/9
, CAIB 3 - Chapter 5
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bonds. iii) Bond limit or
penalty
8. Explain the following This indicates amount surety charges principal for
characteristics of surety bonds issued on their behalf. Premium is not an accurate term for
bonds. iv) Bond Premium surety bonds because sureties do not expect losses
9. Explain the following Surety bonds must be written and signed, under seal, by both surety
characteristics of surety and principal
bonds. v) Written Con-
tract
10. What are five examples i) Surety contracts are three party agreements, insurance contracts are
of differences between two party agreements
surety contracts and in- ii) Sureties do not expect losses, insurers do expect losses
surance contracts? iii) Principals must pay sureties back when they default, insureds do
not have to pay insurer when claims are made
iv) Sureties charge fees, insurers charge premiums
v) Surety contract must be written, insurance coverage may be provid-
ed orally
11. State four types of bonds i) Bid Bonds
common in the construc- ii) Performance Bonds
tion industry. iii) Labour and Material Payment Bonds
iv) Maintenance Bonds
12. Provide three examples i) Low bidder does not sign construction contract
of risks faced by owners ii) Contractor does not complete job at agreed price or fails during job
of construction projects. iii) Contractor does not pay subcontractors or material suppliers
13. Identify four considera- i) Contract with project owner may require subcontractors to be bond-
tions of general contrac- ed
tors when determining ii) Contractor may be long-term relationship or have no relationship
2/9
Study online at https://quizlet.com/_gvbvip
1. Describe the three "C's" of i) Character - This involves studying company's management
credit appraisals and out- performance
line factors considered ii) Capacity - This involves reviewing company's past job performance
for each. iii) Capital - This involves reviewing company's financial ability to finish
work on hand as well as job for which bonding was requested
2. How are surety compa- Sureties are similar to banks because they are being ask to lend credit
nies similar to banks?
3. Define the three parties i) Surety - Organization who undertakes to pay money or to do any
of surety agreements. other act in event that his principal fails therein
ii) Obligee - Is the party to whom someone else is obligated under a
contract
iii) Principal - Organization or person primarily liable
4. What are three charac- i) Promise made to obligee, not principal
teristics of the promise ii) Secondary obligation occurring when principal defaults
made by sureties? iii) Obligation of surety to obligee happens as soon as principal de-
faults
5. Explain the following Surety companies based fees on belief that they
characteristics of surety will not incur any losses. When principal does default, surety believes
bonds. i) No losses ex- they have adequate back up positions to cover guarantee to obligee
pected
6. Explain the following Surety bonds cannot be cancelled by surety company once issued.
characteristics of surety Surety bonds stay in effect as long as principal has not completed their
bonds. ii) Indeterminate obligations
length and non cance-
lable
7. Explain the following This indicates amount of guarantee surety is providing to obligee
characteristics of surety
1/9
, CAIB 3 - Chapter 5
Study online at https://quizlet.com/_gvbvip
bonds. iii) Bond limit or
penalty
8. Explain the following This indicates amount surety charges principal for
characteristics of surety bonds issued on their behalf. Premium is not an accurate term for
bonds. iv) Bond Premium surety bonds because sureties do not expect losses
9. Explain the following Surety bonds must be written and signed, under seal, by both surety
characteristics of surety and principal
bonds. v) Written Con-
tract
10. What are five examples i) Surety contracts are three party agreements, insurance contracts are
of differences between two party agreements
surety contracts and in- ii) Sureties do not expect losses, insurers do expect losses
surance contracts? iii) Principals must pay sureties back when they default, insureds do
not have to pay insurer when claims are made
iv) Sureties charge fees, insurers charge premiums
v) Surety contract must be written, insurance coverage may be provid-
ed orally
11. State four types of bonds i) Bid Bonds
common in the construc- ii) Performance Bonds
tion industry. iii) Labour and Material Payment Bonds
iv) Maintenance Bonds
12. Provide three examples i) Low bidder does not sign construction contract
of risks faced by owners ii) Contractor does not complete job at agreed price or fails during job
of construction projects. iii) Contractor does not pay subcontractors or material suppliers
13. Identify four considera- i) Contract with project owner may require subcontractors to be bond-
tions of general contrac- ed
tors when determining ii) Contractor may be long-term relationship or have no relationship
2/9
