Facts for Prelims (FFP)
Source: PIB
Context: The National Highways Authority of India (NHAI) has embraced an innovative approach, accepting an Insurance Surety Bond in place of a Bank Guarantee for the Toll Operate Transfer (TOT), marking the first such use in the road infrastructure sector.
- This move aims to boost liquidity, encourage private participation in highway development, and promote the ‘Ease of Doing Business’.
- The Insurance Surety Bonds, facilitated by NHAI in partnership with insurance companies, serve as a financial guarantee, underlining their significance in evolving the road infrastructure landscape.
- This approach has received substantial traction, with over 40 such bonds issued for various NHAI contracts, signalling the potential for wider adoption.
- The Ministry of Finance, Government of India has recognized e-BGs and Insurance Surety Bonds at par with Bank Guarantees, consolidating their role in government procurements
About Surety Bonds:
A surety bond is a legally binding contract that is a unique type of insurance. It is a three-party agreement that guarantees compliance, payment, or performance of an act.
A surety bond is a promise to be liable for the debt, default, or failure of another. The principal is the debtor, and the surety is the third person who becomes responsible for the payment of the obligation if the principal is unable to pay or perform. The principal remains primarily liable, whereas the surety is secondarily liable.
Surety bonds are used as an assurance that the issuer will pay any debts if the other party fails to do so. For example, surety bonds can be used as a substitute for bank guarantees in government procurement
