Surety Bonds Research Articles

A NEW INSTRUMENT IN TURKISH FINANCIAL MARKET: SURETY BONDS

A surety bond is a three-party agreement between the contractor, the employer, and the surety in which surety ensures the contractor can fulfill the obligations regarding the contract against the employer. However, the usage of surety bonds in Turkey are quite different from USA and Europe. They are utilized in the place of letter of guarantee. Especially for the contractors with collateral shortage, the surety bond is much more advantageous than the bank letter of guarantee for the contractors since the surety bond does not reduce their credit limits within the banks. Thus, this paper aims to reveal the benefits of surety and targets increasing the awareness of surety bonds in Turkey.

Comparative analysis of financial assurance instruments for offshore oil decommissioning and mine restoration

This paper introduces how different bonding mechanisms for oil and gas decommissioning and mine restoration can ensure operators’ accomplishment of restoration/decommissioning liability and affect their budget. Four mechanisms presented and compared herein include surety bonds, cash collateral bonds, decommissioning and abandonment provisions, and lease-specific abandonment accounts. The author also provides some cautions and recommends amendments for each mechanism to be efficiently applied to oil and gas decommissioning in Vietnam so as to assure operators’ decommissioning duties without discouraging their potential investments.

Multidimensional Societal Targets, Risks, and Government Intervention in the Mining Industry

We explore the impacts of commodity price volatility, the adoption of new technology and environmental risks on the long-term sustainability of a stylized mining firm and examine the implications for government policy intervention. We first analyze whether a mine should remain open or be closed when premature closing is costly due to land rehabilitation and reclamation resulting from an environmental accident. We then go on to investigate alternative resource policy instruments for by which the government may extract resource rents, examples being an ad valorem tax on output, a mining industry-specific corporate tax rate and a royalty on the amount of ore removed. Furthermore, we evaluate the potential of a number of means to correct for environmental externalities and compensate for damages that a mine causes during its lifetime, specifically a Pigou tax on effluents, fines on environmental accidents, mandatory up-front payments to an environmental liability fund and a surety bond to cover closure and reclamation costs. Our simulation results for government revenues from alternative policy packages over the lifecycle of the mine provide important information for policy implementation and the design of taxation and liability payments.

PENGARUH BAURAN PROMOSI DAN KUALITAS PELAYANAN TERHADAP KEPUTUSAN PRINCIPAL MENGGUNAKAN PRODUK SURETY BOND DI PT. JAMKRIDA SUMSEL

This study entitled The Effect of Promotion Mix and Service Quality on Principal Decisions Using Surety Bond Products at PT Jamkrida Sumsel. This research instrument uses a questionnaire, and using multiple linear regression to process tabulated data from the results of respondents' answers. The results of the study conclude, First, the Promotion Mix Variable (X1) has a positive and significant effect on the Decision of Jamkrida Service Users in South Sumatra (Y;. Second, the Service Quality Variable (X2) has a positive and significant effect on the Decision of South Sumatra Jamkrida Service Users (Y); Third, Promotion Mix Variable (X1) is an independent variable whose influence is more dominant on the Decision of Jamkrida Service Users in South Sumatra compared to the variable of service quality; Fourth, the Promotion Mix variable (X1) and Service Quality (X2) have a positive and significant effect on the Decision of Jamkrida Service Users in South Sumatra (Y). This means that the independent variable (X) is increasing together, so the Decision of the Jamkrida Service User of South Sumatra (Y) will increase.

Resource and Environmental Policies for the Mining Industry: What Should Governments Do About the Increasing Social and Environmental Risks?

Growing demand for materials required in the construction of renewable technologies and zeroemission infrastructure may signal significant changes for the minerals and metals market. These in turn might exacerbate the social and environmental risks associated with the mining industry. We explore the impacts of commodity price volatility, the adoption of new technology and environmental risks on the long-term sustainability of a stylized mining firm and examine the implications for government policy intervention. We first analyze whether a mine should remain open or be closed when premature closing is costly due to land rehabilitation and reclamation resulting from an environmental accident. We then go on to investigate alternative resource policy instruments for by which the government may extract resource rents, examples being an ad valorem tax on output, a mining industry-specific corporate tax rate and a royalty on the amount of ore removed. Furthermore, we evaluate the potential of a number of means to correct for environmental externalities and compensate for damages that a mine causes during its lifetime, specifically a Pigou tax on effluents, fines on environmental accidents, mandatory up-front payments to an environmental liability fund and a surety bond to cover closure and reclamation costs.

By-Laws of the Bibliographical Society of America

By-Laws of the Bibliographical Society of America

Default Behaviors of Contractors under Surety Bond in Construction Industry Based on Evolutionary Game Model

In construction projects, some contractors will take default actions against the contracts to obtain maximum profits and damage the owners’ benefits as a result. In the construction markets where effective supervision is not performed well, contractors have more opportunities to default. Surety bonds were designed to solve the default problems and promote the sustainable development of the construction markets. This paper was proposed to explore the interactions between owners and contractors and investigate the influence of surety bonds (high penalty and low penalty) on the default behavior of contractors based on a static and dynamic evolutionary game analysis model. The results showed that applying the surety bond strategy is effective at decreasing the probability of the contractors’ default behavior when the credit system based on a surety bond system is well developed in the construction industry and the cost of the surety bond is low enough. Therefore, government strategies such as a better development of the credit system driven by surety bonds and the subsidies on surety bonds to reduce the cost can mitigate the contractors’ default behavior and keep the sustainability of the construction markets.

GUARANTEE PRODUCT PORTFOLIO: PERFORMANCE AND OPTIMAL PORTFOLIO ANALYSIS

This study aims to analyze the performance of guarantee products and optimize guarantee portfolio at PT Penjaminan ABC. The method used in forming the optimal guarantee portfolio is the Markowitz method and the single index model. The results of the formation of optimal portfolios based on the Markowitz method show that there are five eligible guarantee products included in the optimal guarantee portfolio, namely construction financing, counter bank, general financing, micro financing, and multi-use financing. While custom bond, surety bonds, and other guarantees are not included in the optimal portfolio. In contrast to the Markowitz method, based on the single index model, all guarantee products are not eligible to be included in the optimal guarantee portfolio. Managerial implications of the optimal guarantee product portfolio is an increase in guarantee returns which will further increase company profits and increase company equity. An increase in company equity will reduce the gearing ratio in order to comply with regulations, because the gearing ratio is calculated by dividing the outstanding guarantee volume by the total equity.

Optimality of simple procurement auctions

We consider procurement auctions for the projects where the cost of production is subject to ex-post shocks—cost overruns. The contractor may default due to these overruns, which affects the buyer’s expected cost. Here the lowest-bid auction emerges as the procurement mechanism that: (i) minimizes the expected transfers to the contractors, and (ii) requires the lowest surety bond to achieve a given probability of default. Since surety bonds are costly to post, the above makes a combination of the lowest-bid auction with the surety bond the optimal, i.e., the expected cost minimizing procurement mechanism in a wide range of parameters.

Surety Bonds and Moral Hazard in Banking

We examine a policy in which owners of banks provide funds in the form of a surety bond in addition to equity capital. This policy would require banks to provide the regulator with funds that could be invested in marketable securities. Investors in the bank receive the income from the surety bond as long as the bank is in business. The capital value could be used by bank regulators to pay off the banks’ liabilities in case of bank failure. After paying depositors, investors would receive the remaining funds, if any. Analytically, this instrument is a way of creating charter value but, as opposed to Keeley (1990) and Hellman, Murdock and Stiglitz (2000), restrictions on competition are not necessary to generate positive rents. We demonstrate that capital requirements alone cannot prevent the moral hazard problem arising from deposit insurance. A sufficiently high level of the surety bond with deposit insurance, though, can prevent bank runs and does not introduce moral hazard.

By-Laws of the Bibliographical Society of America

By-Laws of the Bibliographical Society of America

Default Risk Characteristics of Construction Surety Bonds

A construction surety bond helps a development project to proceed smoothly. This financial product has supported the rapid economic growth of several emerging markets, including the Republic of Korea. In this study, by using a unique and high-quality dataset, the authors analyze construction surety bonds to estimate their default probabilities. The results have several empirical implications. First, firm characteristics, such as firm size and leverage ratio, influence the surety bond default risk; the safety and liquidity measure are especially robust indicators. The result also confirms that account receivables can increase the default risk. Second, endogenous variables of the surety bond are also robust indicators of default. Because a construction surety bond itself has additional information about a company starting a new construction project, those variables can contribute to indicating default risk. Finally, default forecasting based on this model has much greater forecasting power than models based on the credit rating. TOPICS:Project finance, statistical methods, credit risk management, emerging markets

By-Laws of the Bibliographical Society of America

By-Laws of the Bibliographical Society of America

Reinsurance auction for surety bonds based on multi-attribute reverse auctions

Reinsurance auction for surety bonds based on multi-attribute reverse auctions

PENERAPAN MANAJEMEN RISIKO DALAM MEMINIMALISIR KLAIM PRODUK JAMINAN BANK GARANSI PADA PERUSAHAAN ASURANSI DI PROVINSI RIAU

The research was conducted to observe the implementation of risk management in analyzing the contractor before issuing Surety Bond guarantee by the insurance and continue as the basis for the issuance of Bank Guarantee (KGB) by private banks and BUMN, because there are still contractors who do not perform their obligation to finish the work causing the claim bank guarantee product. The study was conducted by direct interviews to underwriting insurance issuing Bank Guarantee Cons (KGB) products. The study population amounted to about 67 insurance companies registered in Riau province. But not all of them publish KGB is only 5 general insurance companies, the determination of the number of samples is done by using the sampling area.

Pre-employment costs associated with H-2A agricultural workers and the effects of the ‘60-minute rule’

Agricultural employers increasingly are turning to the foreign guest worker program, known as H-2A, as a means to secure a legal workforce. This paper outlines the procedural aspects and costs of recruiting and hiring H-2A workers. Cost data is from a 2014 survey of citrus harvesters and defines pre-employment costs as filing fees, advertising, surety bonds, travel, and housing. The pre-employment costs associated with guest workers are estimated to be nearly $ 2,000 per worker. The survey was motivated by the ‘60-minute rule’ imposed by the U.S. Department of Labor prior to the 2012-13 citrus harvesting season. Cost data were collected across two crop season, 2012-13 and 2013-14, to analyze the cost implications of the rule. We found that the 60-minute rule significantly increased filing fees. These fees, however, represent a very small share of total costs and overall pre-employment costs associated with the H-2A program did not significantly change.

Evaluating Contractors for Bonding: DEA Decision Making Model for Surety Underwriters

AbstractIn several countries, it is a common practice for construction owners to require contractors to submit several types of surety bonds shifting the risk of contractors default to sureties. The process of evaluating contractors’ applications for bonding is complicated and time-consuming. Surety underwriters are faced with the challenge of considering tens of objective and subjective criteria to make the bonding recommendation. These criteria include a contractor’s financial strength, past performance, and other related aspects. Literature review revealed that there is little guidance to surety underwriters in this regard. As a result, the purpose of this paper is to equip surety underwriters with a decision making model for evaluating contractors’ applications for bonding. The proposed model is based on data envelopment analysis (DEA). The DEA is a robust nonparametric linear programming approach that is widely used for benchmarking, performance measurement, and decision making. The proposed DEA mode...

A Competitive Intelligence Model Where Strategic Planning is Not Usual: Surety Sector in Mexico

Nowadays, the importance of the strategy for an enterprise becomes evident by verifying the changes that characterize its environment. Changes in legislation and regulation models and a greater market fragmentation are clear examples of the threats that lead the change. At the same time, the opportunities that the environment offers through the reduction of entrance barriers and a strong possibility of investment extension have increased. In order to be able to survive in an increasingly competitive environment, organizations must adapt their products to the market. For this to happen, it is necessary that the organization develops a retrieval, analysis and information interpretation process with strategic value about the industry and the competitors in it, which is transmitted to those in charge of the organization at the right time. The objective of this study was to develop a competitive intelligence model in an environment where strategic planning is not common and structural conditions are adverse. The research took place in the surety bond industry in Mexico, and the model obtained allows the surety companies with little strategic planning to know and identify their specific information requirements in order to lead competitiveness in a better way and the quality of their products and services at the same time. The outcome of this study demonstrates that competitive intelligence must suit the enterprise’s activity thus overcoming the barriers offered to this practice by the environment.

SMEs Foreign Construction Business Supporting Plan by Improvement of Surety Bond Issuance focusing on the Adoption of Escrow System

SMEs Foreign Construction Business Supporting Plan by Improvement of Surety Bond Issuance focusing on the Adoption of Escrow System

Government Contracting - Surety Bonds

Jennifer Schaus in Washington, DC presents this piece with Joshua Etemadi (SBA Bonds) on obtaining a Surety Bond for Federal and State & Local government contracting. The topics include but are not limted to Government Contracting, B2G, Federal Procurement, Surety Bonds, B2G, GovCon and SBA.