A conditional bond requires the beneficiary to establish that the contractor defaulted and to prove the loss suffered. An on-demand bond requires the beneficiary to write a letter. That is the whole distinction, and it is the only part of the wording that reliably matters.
Employers naturally prefer on-demand. It converts a bond into something close to cash. Contractors should understand that an on-demand bond can be called during a genuine contractual dispute in which they are in the right, and that recovering the money afterwards is a separate and slower exercise.
We write both. What we will not do is issue an on-demand bond without saying plainly, in writing, to the contractor and its broker, what has been agreed. Most disputes we see about bonds are not disputes about the bond — they are disputes about what someone believed the bond said.
Written by the underwriting team at FDI Insurance d.a.c., Dublin. This piece is general information, not advice on any particular transaction — and it is not an offer of insurance.
