A recent court case against Sweett (UK) Limited for
failure to procure a proper performance bond from the Contractor
brings home the importance of not ignoring those clauses in the
building contract; requiring the provision of other contracts such
as performance bonds, parent company guarantees and warranties. We
are not going to bore you with legal detail, but if you want to
avoid being liable we advise you do as follows:
If you are a Contractor:
Don't agree to give a performance bond, a parent company
guarantee or warranties in an agreed form unless you are sure you
can provide the documents.
If you fail to deliver a performance bond, the court commented
that it thought it was perfectly legal under the JCT Design and
Build 2005 to withhold the entire amount of the performance bond
under an interim payment.
This could mean that contract administrator's will have
more confidence in the future to withhold monies due under interim
payments if you fail to provide a performance bond.
There is no reason why the same principle of withholding
payments would not apply to the late provision of parent company
guarantees and collateral warranties.
When issuing invitations to tender to sub-contractors send them
the form of warranty which you have agreed to supply and make sure
that the sub-contractor agrees to provide this warranty in
Include provisions in your sub-contracts that you may withhold
against interim payments if your sub-contractors do not provide you
the warranties in time.
Keep communicating with the employer's representative
regarding the status of the documents to be provided.
If you are acting as the Contract Administrator, Employer's
Agent or Project Manager:
Have you agreed to prepare contract documentation and arrange
for such documents to be executed by the parties thereto? If
Do not agree to "ensure" that the contract documents
are provided, make sure you qualify this obligation as being
subject to reasonable skill and care and reasonable
Include the obligation to provide documents as a term of the
Persistently chase the contractor for the bond, guarantee and
warranties, never stop chasing!
Keep the employer informed of your progress or lack
Keep the employer informed in writing of the consequences of
not receiving the documents.
When considering whether to withhold payment from the
contractor for failure to provide documents weigh up all the
factors which include whether the contractor is being paid
properly, whether it is progressing the works, whether the
contractor is communicating that it will provide the document(s)
and what effect the action will have on the working relationship
and progress of the works. We advise discussion with the contractor
first and then withholding later if necessary.
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The contents of this article are intended as guidelines for
clients and other readers. It is not a substitute for considered
advice on specific issues. Consequently, we cannot accept any
responsibility for this information or for any errors or
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Among the wide variety of construction related news over the last two weeks, some of it positive and much of it interesting, the topic of construction insolvency was a feature through the insolvencies of Dunne Group and HOC (UK) Limited and the Court of Session decision in the case of Albyn Housing Society Limited v Active Air Conditioning Limited.
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