Bonds and Guarantees

Advising contractors and owners on legal aspects relating to use of bonds and guarantees in construction projects. Generally, owners use bonds alongside construction and engineering contracts to protect against contractor non-performance. Sureties who guarantee a specific contract for its full amount, which can vary based on any contract changes normally issue bonds. The surety is effectively co-signing the contract and is as liable for the performance of the contract as the contractor. On other hand, guarantee arises where a third party guarantees the payment of a fixed amount on default by the principal debtor. The guarantor usually has no responsibility for any terms of the contract.

Our firm advises on all forms of bonds and guarantees. The main forms of bonds and guarantees on which our firm provides advise include:

1. the performance bond/guarantee, which is designed to ensure that the contractor performs the works in accordance with the building contract,
2. the advance payment bond/guarantee, which is used where the employer has agreed to pay the contractor an advance payment under the building contract, but is concerned that the contractor may not be able to perform the contract or repay the employer if something goes wrong,
3. bid bond/guarantee, which is intended to prevent a bidder from abusing the bidding (tendering) process,
4. the retention bond/guarantee, which is used where the contractor and the employer agrees to do away with retention system but the employer still wants some protection against the cost of remedying defects in the works. In such situation, the contractor may agree to procure a retention bond,
5. defects liability bond/guarantee, which is used at practical completion or taking over, where the employer may have paid the contractor in full and released any other security the employer held, and
6. adjudication bond/guarantee, which allows the beneficiary of the bond to call for a payment ordered by an adjudicator's decision.