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What is the difference between sureties and security?

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In construction contracts, if a contractor fails to perform the works, the employer would suffer from severe financial loss and therefore some forms of protection has to be established in the contract.

For surety bond, the contractor obtains a guarantee from a third party i.e. a bank or an insurance company, which in return for a fee, agrees to undertake the financial responsibility for the performance of contractor’s obligations. This third party will pay to the employer in case there is a contractor’s default.

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For security, a sum of money is deposited in the employer’s account and upon satisfactory fulfillment of contractor’s obligations, the sum will be released to the contractor.

This question is taken from book named – A Self Learning Manual – Mastering Different Fields of Civil Engineering Works (VC-Q-A-Method) by Vincent T. H. CHU.

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