©SIRJOEL EXAM SOLUTIONS
12/3/2024 11:27AM
ENGR 413 Chapters 17-19 Exam Questions
With Correct Answers
What is a bond? - answer✔A bond is an agreement whereby the "surety" guarantees that the
"principal" will perform its obligations to the "obligee"
Do bonds follow contract law? - answer✔Bonds are governed by the rules of contract law, and
are similar in some ways to contracts of insurance, though they are not insurance.
What are the three popular bonds used in construction? - answer✔bid bonds, performance bonds,
and payment bonds.
When may an owner require a bond? - answer✔An owner may require a construction contractor
to provide a bond to provide certainty that the contract will be performed.
What is the role of the surety? - answer✔The role of the surety is to guarantee performance for
the benefit of the oblige. Often the surety is a financial institution.
What are the separate contracts between the parties? - answer✔Between the principal
(contractor) and the oblige (owner) primary obligations. Between the surety (financial
institution) and the principal (contractor) secondary obligations; depend on the existence of
primary obligations
, ©SIRJOEL EXAM SOLUTIONS
12/3/2024 11:27AM
What happens if the principal fails to perform? - answer✔If the principal fails to perform, the
obligee will have contractual remedies against the surety and against the principal.
Does the principal pay a premium to a surety, T/F? - answer✔True
What does the surety require of the shareholders of the principal? - answer✔The surety will
typically require the shareholders of the principal to indemnify the surety against any loss.
What is one attribute of the contracts of surety? - answer✔Contracts of surety must be in writing.
For the oblige to enforce the bond, what must they be in possession of? - answer✔To enforce the
bond, the obligee must have the original bond document in their possession.
Does the surety have the right of subrogation? If yes, can they subrogate against the principle? -
answer✔The right of subrogation under surety agreements exists at common law. If the surety is
required to pay out under the bond, it will have a right of subrogation against the principal. this is
the key distinction from insurance contracts, where subrogation cannot be obtained against an
insured
When is bond subrogation useful? - answer✔The right of subrogation is only useful if the
principal, or its shareholders if guarantees were given, are solvent.
What are bid bonds? - answer✔Bid bonds provide the owner with an immediate remedy if a
bidder's bid is accepted and the bidder refuses to enter into a contract, i.e., the surety will be
required to pay the owner the amount specified in the bond.
, ©SIRJOEL EXAM SOLUTIONS
12/3/2024 11:27AM
When are bid bonds provided in the project process? - answer✔Calls for bids often require that
bid bonds be provided when bids are submitted.
What happens if the contractor refuses the contract after winning the bid? - answer✔Depending
on the terms of the call for tenders, and the terms of the bid bond, the contractor's liability for
refusing to contract with the owner may be limited to the amount of the bid bond.
What position will the surety be in in relation to the other parties? - answer✔The surety will
always be in at least as strong a position as the principal.
What defences can the surety rely on? - answer✔the surety will be able to rely on all defences
the principal would have against the obligee, and may have additional defences under the bid
bond, e.g., shorter limitation periods
What happens under a performance bond? - answer✔Under a performance bond, the surety
guarantees that the principal will perform its obligations
What is a performance bond used for? - answer✔Often used to guarantee performance under
construction contracts.
What is the typical value of a performance bond? - answer✔In the construction industry,
performance bonds are normally written in an amount equal to 50 percent of the value of the
contract.
12/3/2024 11:27AM
ENGR 413 Chapters 17-19 Exam Questions
With Correct Answers
What is a bond? - answer✔A bond is an agreement whereby the "surety" guarantees that the
"principal" will perform its obligations to the "obligee"
Do bonds follow contract law? - answer✔Bonds are governed by the rules of contract law, and
are similar in some ways to contracts of insurance, though they are not insurance.
What are the three popular bonds used in construction? - answer✔bid bonds, performance bonds,
and payment bonds.
When may an owner require a bond? - answer✔An owner may require a construction contractor
to provide a bond to provide certainty that the contract will be performed.
What is the role of the surety? - answer✔The role of the surety is to guarantee performance for
the benefit of the oblige. Often the surety is a financial institution.
What are the separate contracts between the parties? - answer✔Between the principal
(contractor) and the oblige (owner) primary obligations. Between the surety (financial
institution) and the principal (contractor) secondary obligations; depend on the existence of
primary obligations
, ©SIRJOEL EXAM SOLUTIONS
12/3/2024 11:27AM
What happens if the principal fails to perform? - answer✔If the principal fails to perform, the
obligee will have contractual remedies against the surety and against the principal.
Does the principal pay a premium to a surety, T/F? - answer✔True
What does the surety require of the shareholders of the principal? - answer✔The surety will
typically require the shareholders of the principal to indemnify the surety against any loss.
What is one attribute of the contracts of surety? - answer✔Contracts of surety must be in writing.
For the oblige to enforce the bond, what must they be in possession of? - answer✔To enforce the
bond, the obligee must have the original bond document in their possession.
Does the surety have the right of subrogation? If yes, can they subrogate against the principle? -
answer✔The right of subrogation under surety agreements exists at common law. If the surety is
required to pay out under the bond, it will have a right of subrogation against the principal. this is
the key distinction from insurance contracts, where subrogation cannot be obtained against an
insured
When is bond subrogation useful? - answer✔The right of subrogation is only useful if the
principal, or its shareholders if guarantees were given, are solvent.
What are bid bonds? - answer✔Bid bonds provide the owner with an immediate remedy if a
bidder's bid is accepted and the bidder refuses to enter into a contract, i.e., the surety will be
required to pay the owner the amount specified in the bond.
, ©SIRJOEL EXAM SOLUTIONS
12/3/2024 11:27AM
When are bid bonds provided in the project process? - answer✔Calls for bids often require that
bid bonds be provided when bids are submitted.
What happens if the contractor refuses the contract after winning the bid? - answer✔Depending
on the terms of the call for tenders, and the terms of the bid bond, the contractor's liability for
refusing to contract with the owner may be limited to the amount of the bid bond.
What position will the surety be in in relation to the other parties? - answer✔The surety will
always be in at least as strong a position as the principal.
What defences can the surety rely on? - answer✔the surety will be able to rely on all defences
the principal would have against the obligee, and may have additional defences under the bid
bond, e.g., shorter limitation periods
What happens under a performance bond? - answer✔Under a performance bond, the surety
guarantees that the principal will perform its obligations
What is a performance bond used for? - answer✔Often used to guarantee performance under
construction contracts.
What is the typical value of a performance bond? - answer✔In the construction industry,
performance bonds are normally written in an amount equal to 50 percent of the value of the
contract.
