Plan the limit on the total of all bonds in force at the same time, not on a single project: add up the bid, performance, advance payment and warranty period bonds that will overlap in time, and add a margin for new tenders. Warranty period bonds "hang" for another 2-5 years after handover – those are the ones most often forgotten in the limit.

When this answer applies to your situation

  • The company takes part in tenders regularly and maintains several bonds at the same time.
  • The volume of projects is growing and the existing limit is becoming too tight.
  • A large project is planned that will take up a significant share of the limit.

What can change the answer

  • Overlaps in project schedules – the limit has to be calculated for the peak moment.
  • The length of the warranty period bonds in each contract.
  • Amortisation of advance payment bonds (whether they reduce as the work is completed).
  • The trend in the company's financial figures – the limit is approved against the balance sheet.

What to check in the policy or quote

  • A register of all bonds in force with their expiry dates
  • The security requirements of the planned tenders
  • Limit utilisation today and at the forecast peak
  • Whether the limit allows a bond to be issued within a few days

The typical mistake

The limit is sized for today's needs. When the next tender is won, the limit is full, and arranging a new bond from scratch puts the contract signing deadline at risk.

Example

A situation typical in practice (generalised example, not a specific client)

A typical situation: a company has 3 active sites (performance guarantees) and 4 handed-over sites (warranty period bonds). The total exposure is twice as large as management is used to thinking – precisely because of the bonds on the handed-over sites.

Related content

Sources and basis

This answer is based on Kristaps Račko's practice as a broker; it is not individual insurance advice. General regulatory context: Apdrošināšanas un pārapdrošināšanas izplatīšanas likums, the Latvian Insurance and Reinsurance Distribution Law (likumi.lv); supervision of brokers – the Bank of Latvia register.

Author: Kristaps Račko, insurance broker (partner at SIA EURORISK) Published: Last reviewed:

This is not individual insurance advice; actual cover always depends on the chosen insurer's wording and the special conditions of the policy.