Also known as a contract bond, is a surety bond issued by an insurance company or a bank to guarantee satisfactory completion of a project by a contractor. For example, a contractor may cause a performance bond to be issued in favor of a client for whom the contractor is constructing a building. If the contractor fails to construct the building according to the specifications laid out by the contract (most often due to the bankruptcy of the contractor), the client is guaranteed compensation for any monetary loss up to the amount of the performance bond.

Performance bonds are commonly used in the construction and development of real property, where an owner or investor may require the developer to assure that contractors or project managers procure such bonds in order to guarantee that the value of the work will not be lost in the case of an unfortunate event (such as insolvency of the contractor). In other cases, a performance bond may be requested to be issued in other large contracts besides civil construction projects. Another example of this use is in commodity contracts where the seller is asked to provide a Bond to reassure the buyer that if the commodity being sold is not in fact delivered (for whatever reason) the buyer will at least receive compensation for his lost costs.

These bonds are normally issued to the Immigration Department for processing of work permits, including those for self-employed Non-Kenyan residents, to facilitate stay in Kenya or for dependants who are not Kenyan Nationals.

A claim under these bonds would arise if a person for whom a bond is given changes his/her employment contrary to the one specified in the work permit or is deported from Kenya.

The Bond amount is for the expenses the Kenya Government would incur for prosecution and /or deportation expenses

These Bonds are also known as tender bonds and can be classified into three categories:

1. Bid Bonds with no financial obligation (for Contractors): These bonds are normally issued for tenders, where the only obligation is a “Promisory Note” to the effect that in case the tenderer wins the tender, we will issue a Performance Bond. The risk is minimal with these types of Bonds as there is no financial obligation involved, and the tenderer if successful may even take a performance bond from any other company.

2. Bid Bonds which have an element of a Guarantee: In such bonds, a bond amount is stated and this amount is normally a percentage of the tender amount. This amount is normally assumed to be the cost, which would be incurred by the principal for calling for new tenders.

3. Bid Bonds used to tender for supply of goods: Organisations which want to buy goods often call for tender for supply of such goods from interested suppliers. Often, one condition on such tenders is that a bid or tender bond should be provided with along with the tender documents.

The common conditions in such tenders are that the tender should be valid for a certain time period (i.e. 30 days, 60 days, etc), the tender will not be withdrawn before the expiry of the time period or if awarded the tender, a supply or performance bond will be supplied. There may also be different conditions on different types of tender documents. Bid bonds normally have a period during which the bid is valid and in the event the insured is not awarded the tender, the bid bond lapses.

Financial Guarantee bonds are a general type of surety bond. Financial guarantee bonds do pretty much what the name suggests; guarantee payments on a financial obligation. These bonds come in many forms from tax bonds to commercial lease agreement bonds.

Financial guarantee bonds guarantee that the financial obligation of the bonded party will be satisfied. For bonds like the commercial lease guarantee bond, the bond provides a guarantee that the lease payments will be paid. The bond amount would typically be based on the total annual payment amount of the lease. Bonds like the sales tax bond provide a guarantee that the amount collected for sales tax on taxable goods will be remitted to the state or local government. The bond amount, in this situation, is typically based on an average monthly sales tax calculation.

These Bonds are also known as tender bonds and can be classified into three categories:

1. Warehouse Bonds: These bonds are normally used for the storage of goods without payment of duty in a bonded warehouse under customs control and as and when the goods are removed, duty is paid. If the goods are fully removed within the bond period and the duty paid, the Bond duly cancelled should be returned to us either directly by the Customs Department or through the Insured.

2. Manufacturing Bonds: This bond is used for importation of raw materials duty free on the condition that the finished goods are exported out of the country. These Bonds are mainly required by industries which manufacture under Bond. If the goods are not exported or are sold in the country, duty is payable by the Insured, and in case of failure to do so the Bond amount would be called for by the Customs Department.