it is a written statement given by the contractor that he will repay or settle the advanced cash paid by the owner related to contract. This bond ensures that the principal will perform his obligation as mentioned in the contract. If he fails to perform his obligation, then this bond makes the obligator to repay the advance as per contract. Mostly, this bond has been used by the overseas buyer to returning their advance in failure of the contract.
In case of export, the importer gives advance to the exporter to complete his contract. Due to this payment he gets a statement from the exporter that, if he fails in his commitments, he will repay the advanced amount given by the importer. Generally every importer will insure upon this statement to get back his fund. In above case the advanced guarantee his obtained from the exporter. The amount covered by this statement is usually 10-30% of the contract price.
This bond is used by the building contractors to fulfill his contract within the contract period. If any loss incurred to the purchaser, then the loss will be covered by the insurance company. Insurance company will cover the loss only when the builder cannot able to use the down payment given by the customer or the builder cannot able to refund the amount given by the customer. Insurance company will not cover the loss, when the builder fails to perform his obligation or is unable to complete his contract due to war, terrorism etc.
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