Bonds

A Bond is A written legal contract executed under seal whereby the person or persons entering into it bind themselves to pay to some other person or body a specified sum of money, known as Penalty if any of the conditions of the bond are not performed.


Why Bonds?

Bonds provide a guarantee that projects will be completed as expected – even if the contractor fails.

Bonds are an inexpensive way to protect the public interest and assure contracts are completed on time, for the agreed-upon price.

Type of Bonds

Tender Bonds

This tender bond (or bid bond) is for use where a Procuring entity is obtaining tenders for a contract and requires a bond as security against the risk of the successful bidder failing to enter into the contract. It gives the beneficiary the right to call the bond on demand within a specified period and for a maximum specified amount.

Advance Payment Bond

This is a down payment given to the principal by the obligee to ensure that he will perform his obligation as mentioned in the contract. An advance payment bond guarantees the obligee to complete his contract as per the agreement covering loss only when the principal cannot be able to refund the amount given by the obligee.

Performance Bonds

A performance bond is a surety bond issued by an insurance company or a bank to guarantee the satisfactory completion of a project by a principal. If the principal fails to perform according to the specifications laid out by the contract (most often due to the bankruptcy of the principal) the client (obligee) is guaranteed compensation for any monetary loss up to the amount of the performance bond.

Work Permits/Security Bond

This is a legal authorization that allows a person to take employment in instances where a person is permitted to work in a country where one does not hold citizenship.

The first surety should be the firm employing such a person and the second surety is the Ins Co. It is the responsibility of the first surety to write to immigration when such persons leave the organization for the bond to be canceled. It is renewable in Kenya every two years.

Customs Bonds

This is a guarantee from a surety to the Government that the Principal will faithfully abide by all laws and regulations governing the payment of Customs revenue together with the proper carrying on of business in dutiable articles. There are two classes of Bonds namely;
  1. Particular bonds - These are executed to cover one specific transaction.
  2. General Bonds - These are executed to cover several transactions over an unspecified period.

The validity of Customs Bonds

Customs bonds do not expire. They are valid from the time of proper execution up to the time of bond discharge by the parties to the bond. Read Section 108 of the EAC Customs mgt Act and 109 on bond enforcement.

Financial Guarantee

This is a first demand indemnity bond that is backed by an insurer to guarantee an obligee that principal and interest payments will be made. The guarantee provides an additional level of comfort that the investment will be repaid if the principal would not be able to fulfill the contractual obligation to make timely payments.

Benefits and Advantages of Bonds To The Principals/Obligors


  1. Liquidity of funds.
  2. Multiple Projects.
  3. Convenience.

Benefits and Advantages of Bonds To The Owners/Obligees


  1. Faster Commercial Transaction.
  2. Guarantee from a third party.
  3. Economic activity.

Types of Customs Bonds


Type Definition PB/GB Duration
CB 1 delivery of perishable goods or other goods prior to payment of duty Both PB – 48 hrs
GB – 3 Yrs
CB(1A) Delivery of project goods entered provisionally before payment of duty PB Only 90 Days
CB 2 Removal of goods from one port or place to be examined and entered
at another port/place
Both PB – 48 hrs
GB – 3 Yrs
CB 3 Warehousing of goods or removal of warehouse goods Both PB – 21 Days
GB – 3 Yrs
CB 4 Exportation of goods Both PB – 45 Days
GB – 3 Yrs
CB 5 Shipment of stores e.g. provided to planes or ships Both PB – 30 Days
GB – 3 Yrs
CB 6 General bond for the security of warehoused goods GB Only GB – 3 Yrs
CB 7 Shipment of goods forebeentry – goods are shipped and
documentation is done later
PB Only 96 Hrs
CB 8 Transit Bond GB Only 3 Years
CB 9 Transshipment bond Both PB – 30 Days
GB – 3 Yrs
CB 10 Re – exportation of imported goods delivered without payment of duty PB Only 1 Years
CB 11 Bond for Customs Agents GB Only 3 years
CB 12 Conveyance of goods subject to customs control GB GB – 3 Yrs
CB 13 For goods imported for use in the production of goods for export PB Only GB – 3 Yrs
CB 14 Removal of goods to and from an EPZ GB 9 Months
CB 16 For project goods imported and delivered without payment of duty PB 1 Years
CB 18 For security of goods in a transit shed or a Customs Freight Station GB Only Until retired
EB 1 Bond for hetpayment of Excise duties GB Only 3 years
EB 3 Bond for licensed manufacturer - -
- Security to Customs PB Only Until retired
- Customs Transit Guarantee Both PB - 90 Days
GB – 3 Years

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