Bonds have been in use in the construction and civil engineering industry since the 17th century and provide a guarantee of payment of amounts or damages due under contract. Increasingly common outside the construction industry, a wide range of Bonds or Guarantees are available from the insurance market to underpin contractual obligations or meet statutory requirements.
ABI (Association of British Insurers) Model Form of Bond. Created in 1995 this bond wording acts as the market standard reference point. Written in plain, concise English the bond operates as a guarantee of payment on contractor default or at the point damages are due under the contract.
On Demand Bonds. These Bonds are issued by Bankers, and as the name implies can be converted into funds by a call at any time. They are not linked to the underlying contract and effectively negate any safeguards built into the contract as the contractor has no ability to challenge the call upon the bond. Bankers treat such instruments akin to an open cheque and are treated as part of a company’s credit facility.
Parties to a Bond; Contractor, Employer & Surety or Guarantor.
A large number of underwriters (Bondsmen) operate in the UK. We have listed some of the better known sureties universally accepted due to their financial strength and rating. The requirement for acceptance of a Contractor is generally linked to 2 years trading, provision of full audited accounts showing a positive net worth. Other Sureties may consider business with lower acceptance criteria, however these Sureties may not be acceptable to all Employers.
