We have secured an NEC Option A contract where the client wants a bond, using an Un-amended ABI worded Bond. Our bondsman has just come back with the following concern over the method any loss is assessed, they currently are unwilling to provide the bond due to this issue. Has anyone had any similar issues or any comments on how best to deal with this? The bondsman’s comments are:-
“Once again the requirement for the bond wording is the use of the NEC contract. This version (or similar) is always required due to the way in which this contract operates, as loss is established by way of an assessment of the Project Manager. This is not done on the basis of actual costs (as would be the case for other contracts such as JCT), but merely an estimate of the damages which may be incurred. The contract provides no opportunity for challenge or re-assessment”.
The bondsman is wrong in two respects from what I can gather.
Firstly, under option X13, the bond is in the form stated in the Works Information, so it may the wording in the Works Information which he objects to i.e. the Un-amended ABI worded Bond . For instance, in the unamended contract it says nothing about how loss is established, so presumably it is some standard wording used in this bond. I could not find any standard wording in the Guidance Notes for a bond, which did not surprise me as the terms for bonds vary hugely. Given this, the PM can change the wording to make the bondsman happy with it. In return though, he may want a reduction in the Prices.
Secondly, assuming it is a UK construction contract as defined under the Housing Grants, Construction & Regeneration Act, the enforcement of a term of the contract - of which the bond forms a part - has to be challengeable by adjudication. There may even be formal interim dispute escalation proceures in the contract to prevent it getting this far.