Bonds and Warranties

Question 1

What are bonds? Explain the different types of bonds available?

Answer 1

Default Bond- Proof required
On Demand Bond - No Proof

Performance bond - Default
Advance Payment Bond - On Demand
Retention bond - On Demand

Question 2

What is a performance bond? What are the advantages and disadvantages of Parent Company
Guarantees v Performance bonds?

Answer 2

Performance bond - acts as security for losses sustained by the developer should the contractor fail to perform its obligations under the construction contract. Performance Bond cost money to take out however provides more surety.
Parent Company Guarantee - No Cost however if insolvency were to affect the entire group it would be useless

Question 3

Explain retention bonds – how do they work?

Answer 3

Retention is usually taken 5%/3% is taken usually withhold at every valuation. A retention bond is put in place where the retention is not held against the contractor/subcontract and the money is instead held by a third party. If the contractor/subcontract is unable to rectify their defects then the client/employer can claim on the bond to cover the rectification costs. The Bonds cover is reduced by 50% at PC and remainder at MGDC

Question 4

An advanced payment bond is usually put in place to help cashflow. When materials have a long lead in time the contractor can still be paid for those materials and then that bond amount is drawn down upon until full payment has been received then the bond ends.

Answer 4

An advanced payment bond is usually put in place to help cashflow. When materials have a long lead in time the contractor can be paid for those materials by the employer and the advanced payment bond is taken out which is drawn down upon until full payment has been received then the bond ends.

Question 5

Why should a retention statement still be produced?

Answer 5

If a claim was to be made against the bond then you would know how much the retention is for. If the contractor fails to take out their bond then this wording is still in place

Question 6

How do you claim under a retention bond?

Answer 6

Notify the main contractor that a claim will be put in place (14 days) and then inform the 3rd party that they have undertaken the required procedures and that the contractor is failing to undertake their defects. Letter will be sent to the 3rd party (bond company) containing evidence of MC not rectifying and the value to be claimed

Question 7

What is project insurance? What advantages does it offer?

Answer 7

Project Insurance policies combine Contract Works, Public Liability and JCT Non-negligence

• Cost saving as their is no duplicated insurances 
       taken out by different parties. One broker who 
       fully understands the liabilities and risks 
       involved.
• No Subrogation.
• Covers gaps in the policies
      Easier to make a claim on the one policy all risks 
      covered