The name’s Bond…Performance Bond actually
But it could be any type of Bond required in construction – the main ones that are usually requested through Compariqo aside from Performance Bonds are Insolvency Bonds, Advance Payment Bonds or Road and Sewer Bonds.
A bond is a guarantee of one company’s obligations to another. If those obligations are not satisfactorily met, then there is a guarantee that the underwriter will cover any potential loss or remedial works up to the value of the agreed bond limit.
In road construction or housing development, a performance bond is a tool that helps ensure the successful and satisfactory completion of a large project.
The Performance bond is issued by one contracting party to another as a guarantee against the issuing party’s failure to complete his obligations under the contract or failing to deliver the project to a certain standard or timeframe as agreed. The bonds are issued by an insurance company and would be paid for by the party who is providing the service under the agreement.
To be able to make a claim on the bond, it must be established that there has been a breach in contract as performance bonds are conditional bonds which criteria must be proven before any compensation can be paid out under the bond.
Advance Payment Bonds
Under many construction contracts, the client will agree to make an advance payment – usually between 5 and 10% of the entire value of the contract. This money can come in very handy for contractors in going towards construction costs but can usually require a guarantee that the money will be secured against any default – this is what is called the Advance Payment Bond or APB.
Where a contractor has requested an advance payment to fund any significant start up or procurement costs before the start of construction, the bond will protect the client in the event that the contractor becomes insolvent or if the contractor fails to fulfil his contractual obligations under the contract.
APBs are usually paid out straight away, meaning there are no conditions which have to be met in order to receive compensation and no breach of contract needs to be proven. However, the contract must be drawn up to specifically state this to make sure that money is paid out straight away as an “on-demand” bond.
Insolvency Bonds are designed to protect clients against the risk of a developer becoming insolvent at any point throughout a project. Under the bond, the insurer will agree to cover the cost of completing the work to a satisfactory standard in the event that the developer become insolvent.
Road and Sewer Bonds
These types of bonds are also known as Section 38 Road, Section 104 Sewer and Section 278 Junction. When constructing roads and sewers, Local Authorities and water companies need to know that they will be constructed to a standard which can be used and adopted.
Road and Sewer Bonds are a guarantee which is provided on behalf of a developer to a local authority under the Highways Act or a water company under the Water Industry Acts to ensure that roads and sewers are completed to an adoptable standard. Bonds are taken out with an agreed value and as work progresses, the value of the bond decreases as less money would be needed to complete the project.
If you require a Bond for a current or upcoming project, contact us today for a quote.