Materials Off-Site Bond
Sometimes on a project, you need to order big-ticket materials or prefabricated parts that can’t be stored safely on site. The challenge? Clients often don’t want to pay for those materials until they see them on site and that can hold things up.
That’s where a Materials Off-Site Bond comes in.
It’s a bond backed by an insurer that gives the client security for materials they’ve paid for, even if those materials are still in the factory, warehouse, or on the road. It proves the goods are real and protected and that the value is covered until they arrive on site and get used.
It’s a smart way to keep projects moving without payment delays and gives peace of mind to both the builder and the client.
What It Covers
It covers the materials or goods paid for, but not yet delivered to site. If a contractor or supplier has been paid for off-site materials and then fails to deliver them (due to insolvency or theft of goods) the employer can claim the bond to recover the funds.
Essentially the insurer guarantees that the money advanced for those materials will not be lost – either the materials will arrive or the employer will be imbursed. It is a safeguard for the client’s early payment of materials.
When Is It Used?
This bond is used when the contract allows payment for materials offsite. In such cases, the contractor must typically provide evidence of ownership and storage of materials, and an Off-Site Materials Bond, before the employer will certify payment for those items.
A typical scenario:
A contractor purchases a large quantity of structural steel that is stored at a warehouse due to limited site space. The contractor wants to include this steel in the next payment claim. The employer will insist on a Materials Off-Site Bond as a condition for paying for the steel that is not yet on the premisis. Once the bond is in place, the contractor can claim the cost of those materials in the intrim payment.
Who Benefits?
The employer is protected – they can pay for the big-ticket materials in advance, knowing they won’t pay twice: If the materials don’t show up, the bond covers the loss.
This also gives the employer confidence to approve off-site payments, which can help keep the project on schedule (ensuring long lead items are secured in time).
The contractor benefits by getting paid for the materials earlier than if they had to wait until the next step of action to order materials, and then be delayed by waiting for materials to be delivered. This improves cash flow and helps finance procurement.
Contractors can purchase bulk materials or prefabricated units without bearing the full financial cost until installation.
In short – The contractor gets the cash benefit of early payment and the client gets security for the payment.
Secure Your Next Project In Minutes
Frequently Asked Questions
What happens if the contractor goes bankrupt?
What documents should I have prepared for the application
- Company profile (including an organogram and copies of the current and previous contracts)
- Two years’ financial statements and three months’ bank statements
- Letter of appointment
- Contract information
- Guarantee wording requirements
- Company registration documentation
- Copies of all members’ identity documents and income tax numbers
- Copy of letterhead
- Tax clearance certificates
- CIDB certificate
What will the guarantor look at when assessing my application?
All applications are subject to a thorough analysis to establish the Contractor’s risk profile. This will include an assessment of the Contractors’ financial standing and their resource capabilities to fulfill the Contract obligations.
For Corporate Clients, emphasis is placed on:
- the financial standing of the Contractor
- the company structure and shareholding
- the Contract information
- the Guarantee wording requirements
- the securities available
What Could Trigger A Claim?
Liquidation of the contractor
Contractor expressly refuses to perform its obligation
Breach of contract by the contractor
Get All The Benefits Of Our Off-Site Materials Bonds
Tender on Bigger Projects
Unlike Bank Bonds, we don’t require 100% collateral when issuing Off-Site Materials Bonds. With cash collateral requirements of only 7–15%, our bond facility allows you to free up your cashflow and tender on bigger contracts.
Ensure Your Project's Success
When issuing an Off-Site Materials Bond, the Guarantor/Insurer agrees to back you and become your co-principal debtor. This means you’ll then have a third-party’s professional opinion of your ability to perform and complete the project.
Get Your Project Started Without Delay
Once your initial Guarantee facility has been approved, you can be assured of a fast and seamless process when requesting Off-Site Materials Bonds on all your future projects.
Pay Less Tax
Both the Off-Site Materials Bonds & Contingency Premiums are considered insurance expenses and are therefore deductible for company tax purposes.
Save For A Rainy Day
Your Collateral Funds (Contingency Premium), reserved by the Insurer, will earn investment income at current interest rates. Should your Off-Site Materials Bonds be returned, expire, or your facility cancelled, your Contingency Premium will be returned to you, inclusive of interest earned. The Contingency fund also allows you to accrue reserves for unforeseen risks on a particular project, or to allow yourself additional capacity for future projects.
Save Time and Resources
There’s no need to go in search of a supplier for your other insurance needs. We offer a full range of niche, insurance products at exceptionally competitive rates.
