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NEC4 ECC Short Contract - Guarantor offering amended wording for Performance Bond

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The Contractor has been asked to provide a Performance Bond of £85k or 10% for this Short Contract.
The Contractor has advised that the Insurer requires the following rider to the standard bond wording for a NEC4 contract.
It would appear that the the clause would impact the Client's cash flow and prevent the Client recoupling under Cl 92.3  the "forecast additional costs to the Client of completing the works"  of termination  within the Cl 92.4  period of 13 week. Payment of costs by the Guarantor would be held until completion of the Contract works.

Could I have some comment on how usual / widespread this wording is and whether our Client should accept it or insist on an un-amended Bond.

Wording as follows:
“…….but, subject to such limitation, and subject always to the provisos that, for the purposes of this Guarantee Bond, no estimate, forecast or assessment of the “Project Manager” (as defined in the Contract) shall be binding on the Guarantor, and that, notwithstanding any provision of the Contract by which, following termination of the Contractor’s obligation to provide the Works, the Contractor might be required to make payment of an “amount due on termination” on the basis of such an estimate, forecast, decision or assessment, the Guarantor shall have no liability to make payment under this Guarantee Bond until such time as the whole of the Works have been completed and the damages actually sustained by the Employer have been properly established and ascertained taking into account all sums due to the Contractor.

Additionally, any provision of the Contract which purports to make an agreement or compromise between the Contractor and “Employer” or “Client” or equivalent (howsoever defined in the Contract) and/or a decision of the Senior Representatives or Adjudicator (howsoever defined in the Contract) conclusive or binding on the Guarantor, shall not be conclusive, final or binding on the Guarantor in respect of any sums due, whether claimed on an interim basis or relating to the final amount due and the Guarantor shall have no liability to make payment under this Guarantee Bond until such time as the whole of the Works have been completed and the damages actually sustained by the Employer or Client have been properly established and ascertained taking into account all sums due to the Contractor.”
asked Jun 20 in Secondary X, W and Y options by KatherineG (120 points)  

1 Answer

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The first point to note is that there is no standard bond wording under NEC as the Bond terms are set out in the Scope,.  From my own experience I have encountered a wide range of wording from a 'simple' guarantee to a clearly worded on demand bond.  Most documents fall somewhere in between these raising confusion of whether the document is a guarantee or a bond.  In your case it is actually called a Guarantee Bond, although it does talk about 'making payment' so I can assume it is a conditional bond.

The wording doesn't preclude the Client from claiming amounts, it is just expressly stating that any amounts will be based on 'damages actually sustained', rather than based on an assessment or forecast.  This is actually how a conditional bond would work with the beneficiary (Client) having to prove both the default and direct loss and expense suffered before the Bondsman is obliged to make payment.

I'm not sure about the 'whole of the works are completed' part and whether this  means that you would be unable to make a claim until this occurs, either by the Contractor or somebody else, following termination..

If the bond wording was provided in the Scope at the time of tender I would suggest that the Contractor is obliged to comply with this unless the Employer agrees otherwise.
answered Jun 21 by Andrew W-I Panel Members (21,140 points)