CAIB 3 Chapter 5 Study Questions with
Answers
Meaning of Surety: what are the 3 "c"s - ✔✔Character,
Capital, capacity
Describe the 3 "c" s for Surety - ✔✔Character: involves a review of the Companys management
performance
Capacity: involves an assessment of the principals ability as based on past history.
Capital: involves the financial capability of the principal to complete the work on hand.
define 3 parts of Surety Agreements - ✔✔a) Principal: organisation or person primary liable
b) Obligee: is the party to whom soneone else is obligated or The party to whom the bond is
given.
c) Surety: organisation who undertakes to pay money or to do any other act in event that his
principals fail there in
3 charateristics of promise made by Sureties - ✔✔1) is a promise made to the obligee and not
the principal
2) is a secondary obligation arising only on the default of the principal.
3) Suretys duty to pay arises immediately upon default of the principal
No Loss Expected : define - ✔✔Surety companies based fee on the belief that they will not incur
any losses, When principals default, surety believes they have adequate backup postions
Indeterminate length and Non Cancellable - ✔✔Surety Bonds cannot be cancelled once issued.
they stay in effect as long as principal has not completed their obligation
Bond Limit/Penalty - ✔✔this indicates amount of guarantee surety is providing to obligee
, Bond Premium - ✔✔the amount surety charges principals for bonds issued on their behalf.
Premium is not an accurate term as they do not except losses.
written contract - ✔✔surety bonds must be written and signed under seal by both surety and
principal
5 examples of surety vs insurance - ✔✔1. 3rd party agreements vs 2 party
2. do NOT expect losses vs DO expect losses
3. principals payback when default vs insureds don pay back when claims are made
4. fees are charged VS premiums charges
5. written contract VS oral or written contracat
who requires Construction Bonds? - ✔✔a. Owners
B. General Contractors
c. Sub Contractors
3 Examples of risks faced by owners of construction projects. - ✔✔1. The refusal or inability of
the successful bidder to enter into a contract.
2. The failure of the contractor to complete the project at the contract price.
3. the inability of the contractor to pay subcontractors and suppliers
4 considerations of general contractors when determining whether or not to request bonding
from sub contractors - ✔✔- the terms of the contract
- the relationship between contractor and sub trades
- the value of the sub contract
- the subtrade's price in relation to other bidders
Answers
Meaning of Surety: what are the 3 "c"s - ✔✔Character,
Capital, capacity
Describe the 3 "c" s for Surety - ✔✔Character: involves a review of the Companys management
performance
Capacity: involves an assessment of the principals ability as based on past history.
Capital: involves the financial capability of the principal to complete the work on hand.
define 3 parts of Surety Agreements - ✔✔a) Principal: organisation or person primary liable
b) Obligee: is the party to whom soneone else is obligated or The party to whom the bond is
given.
c) Surety: organisation who undertakes to pay money or to do any other act in event that his
principals fail there in
3 charateristics of promise made by Sureties - ✔✔1) is a promise made to the obligee and not
the principal
2) is a secondary obligation arising only on the default of the principal.
3) Suretys duty to pay arises immediately upon default of the principal
No Loss Expected : define - ✔✔Surety companies based fee on the belief that they will not incur
any losses, When principals default, surety believes they have adequate backup postions
Indeterminate length and Non Cancellable - ✔✔Surety Bonds cannot be cancelled once issued.
they stay in effect as long as principal has not completed their obligation
Bond Limit/Penalty - ✔✔this indicates amount of guarantee surety is providing to obligee
, Bond Premium - ✔✔the amount surety charges principals for bonds issued on their behalf.
Premium is not an accurate term as they do not except losses.
written contract - ✔✔surety bonds must be written and signed under seal by both surety and
principal
5 examples of surety vs insurance - ✔✔1. 3rd party agreements vs 2 party
2. do NOT expect losses vs DO expect losses
3. principals payback when default vs insureds don pay back when claims are made
4. fees are charged VS premiums charges
5. written contract VS oral or written contracat
who requires Construction Bonds? - ✔✔a. Owners
B. General Contractors
c. Sub Contractors
3 Examples of risks faced by owners of construction projects. - ✔✔1. The refusal or inability of
the successful bidder to enter into a contract.
2. The failure of the contractor to complete the project at the contract price.
3. the inability of the contractor to pay subcontractors and suppliers
4 considerations of general contractors when determining whether or not to request bonding
from sub contractors - ✔✔- the terms of the contract
- the relationship between contractor and sub trades
- the value of the sub contract
- the subtrade's price in relation to other bidders
