A surety facility is an approved aggregate limit for a named applicant, set against one set of accounts and one counter-indemnity, inside which individual bonds are issued as the work arrives. Each bond issued consumes part of the aggregate and each bond released gives it back. The credit decision has already been taken by the time a bond is asked for, which is the whole reason the answer can be quick.
That is the practical case for it. With the wording agreed in advance, a performance bond for a facility holder is issued inside 24 hours — the turnaround published on the product page — while a first bond for a new applicant takes as long as reading a set of accounts and a counter-indemnity takes, because that is what it is. Asking for a facility in February is the same conversation as asking for a single bond in February. Asking for one in October, with the contract awarded and site access pending, is not.
Sizing is where most facilities are set wrong, and the mistake is to size to the year’s turnover or to the pipeline. What has to fit inside the limit is the peak of simultaneously live obligations, which is not the sum of the year’s contracts and is usually higher than a broker expects. Retention runs a year or more past practical completion. An advance payment guarantee expires on delivery, which can be long before the contract is finished. A bid bond and the performance bond that replaces it overlap for a few weeks. Count the overlaps in the worst month and size to that month.
A facility costs nothing to hold. Premium is charged on the bonds actually issued, at the rate agreed when the facility was set, with the issue fee for each bond — there is no charge on an undrawn limit and no repricing of the third bond because the year turned out busy. What the applicant gives up is one set of accounts a year and a straight answer about the group structure.
The half of it that gets neglected is release. Aggregate that has been paid for and is doing nothing is the most expensive thing in a surety book: bonds that should have been discharged at practical completion sit in force for years because nobody asked the beneficiary for the release. We send facility holders an annual schedule of live bonds and the expiry basis of each one, and the point of that schedule is to be argued with.
What to send when you ask: the last audited accounts and the current management figures, the obligations expected over the next twelve months by type and value, the wordings the applicant’s employers use, and the group structure, so the counter-indemnity comes from the entity that holds the assets. That is one submission. Everything after it is a phone call.
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.
