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 advance.
- 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 so:
- 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 endeavours.
- Include the obligation to provide documents as a term of the building contract.
- Persistently chase the contractor for the bond, guarantee and warranties, never stop chasing!
- Keep the employer informed of your progress or lack thereof.
- 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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