Construction Bonds & Guarantees
Bid Bond: This bond is required when submitting a tender and secures the employer from the premature withdrawal of a tender or if the appointed contractor is unable to fulfil it’s contract award conditions.
Advanced Payment Guarantee (APG): Some contracts make provision for Employers/Principals to pre-finance a contractor by making payments before the commencement of the contract. The Employer/Principal secures such a risk by requiring an advance payment guarantee/bond in return. Usually, the guaranteed amount will decrease in accordance with the percentage of the work certified. The guarantee/bond will be equal to the pre-financed amount which is usually 30%.
Performance Guarantee: The most common form of guarantee, which protects the Employer/Principal against the risk of the contractor failing to comply with the conditions of the contract. Traditionally, the performance guarantee amount is equal to 10% of the contract sum. However, under the JBCC the guarantee requirement is different. Normally the fixed guarantee is 5% and the variable is 10% reducing to 2%, of which the latter version includes a retention provision. Some JBCC contract conditions make provision for a 7.5% fixed and12% variable guarantee.
Retention Guarantee (RG): These bonds effectively replace the actual retention fund. Most contracts make an allowance for the Employer/Principal to retain a percentage of the funds payable to the contractor during the construction period as a form of security against default or defective workmanship. A portion of the funds retained is paid out at the end of the construction period and the balance at the end of the maintenance (defects liability) period. Funds released with a guarantee/bond significantly enhance working capital.