Civil Engineering Reference
In-Depth Information
under the principal contract, liability under the bond will be similarly excluded or
limited. In order to avoid the potential difficulties associated with cautionary obli-
gations referred to above, it is made clear that the guarantor shall not be discharged
or released by any alteration of any of the terms, conditions and provisions of the
principal contract.
One of the most likely situations in which an employer would wish to call on a
bond is the insolvency of the contractor. This will of course depend upon the word-
ing of the bond but in
Perar BV
v.
General Surety and Guarantee Co. Ltd
(1994) the
Court of Appeal held that insolvency and consequent termination of the contractor's
employment were not a breach of contract which could trigger the bond. Although a
termination event, insolvency was not itself a breach of the contract and the right to
call for payment of the bond would not arise until, for example, the contractor had
failed to make payment of any sums consequently due to the employer.
The ABI bond does not provide that the contractor's insolvency would allow the
employertodemandpaymentofthebondamount,whichsomemightviewaslimiting
theeicacyofthisformofbond.hisdiicultyisotenaddressedbytheinsertionof
additional wording to specify that insolvency will be treated as a breach of contract
by the contractor and establishing a method of determining what level of damages is
then payable to the employer.
23.2.6 Retention bonds
Retention bonds are becoming more commonplace, as an alternative to the employer
making a cash retention from the contract sum, and have obvious cash-flow attrac-
tions for contractors. The bond, backed up by a bank or insurance company, will
securethelevelofretentionuntilthecontractualdateforrelease.Toensurethatthe
employer has the same level of security as if it has made a cash retention, the retention
bond will normally be on demand (or at least will be drafted with that intention). he
bond will also normally provide that the maximum amount of the bond will reduce
at practical completion by the same level as retention would have reduced, had it
been applicable. If the contractor fails to honour its obligations to remedy defects, the
employer can call upon the bondsman to pay the requisite sum up to the maximum
amount of the bond. Clause 4.19 of the SBC and clause 4.17 of the SBC/DB contain
optional drafting for the provision of a retention bond and a form of retention bond is
to be found in Part 2 of Schedule Part 6 to the SBC and the SBC/DB. The NEC3 does
not make provision for a retention bond.
23.2.7 Advance payment bonds
Clause4.8oftheSBCandclause4.6oftheSBC/DBprovidethat,ifsostatedin
theContractParticulars,anadvancepaymentmaybemadebytheEmployerto
theContractorwhichshallbereimbursedonthetermssetoutintheContractor
Particulars. Although this provision is not often used, it may be of value in cases
where the Contractor requires to expend significant amounts of money, e.g. for
