Bonds v guarantees - Revision history

Designing Buildings at 08:01, 25 October 2021

2021-10-25T08:01:35Z

← Older revision		Revision as of 08:01, 25 October 2021
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	Follow Najma on Twitter to keep up to date with the latest changes in construction law [https://twitter.com/NDunnett_Cons @NDunnett_Cons].		Follow Najma on Twitter to keep up to date with the latest changes in construction law [https://twitter.com/NDunnett_Cons @NDunnett_Cons].

−	= Related articles on Designing Buildings ~~Wiki~~ =	+	-----
		+	NB
		+
		+	[https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/987142/Resolution_planning_guidance_note_May_2021.pdf Resolution planning, guidance note], published by the Government Commercial Function in May 2021, states:
		+
		+	'Guarantees and bonds can be either performance or financial in nature or a combination of both. They only crystallise when a supplier has failed to perform or to pay a sum of money due to the Contracting Authority. As such, they provide a remedy once a supplier has failed to deliver the works or service, or make a payment, rather than pro-actively supporting performance of the contract.
		+
		+	'Bonds are typically provided by independent third parties (banks and insurance companies) and provide financial compensation in the event of supplier failure. They are generally used in construction contracts for which an active private market exists but are generally not appropriate for service contracts. They can also add significant cost. The availability and cost is not only affected by the type of bond (performance / conditional / on-demand) but also by the wider economic conditions at the time of application.
		+
		+	'Guarantees may be provided either by another member of the supplier’s group (usually a parent company) or an independent third party. Guarantees from group members are typically of limited use in the event of the insolvency of the supplier’s parent company. Guarantees from independent third parties should be unaffected by the insolvency of the supplier’s parent company but may be more expensive.'
		+
		+	= Related articles on Designing Buildings =

	* Advance payment bond.		* Advance payment bond.

Designing Buildings at 08:38, 4 September 2020

2020-09-04T08:38:57Z

← Older revision		Revision as of 08:38, 4 September 2020
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	* BAILII, [http://www.bailii.org/ew/cases/EWCA/Civ/2012/1716.html Aviva Insurance Limited v Hackney Empire Limited].		* BAILII, [http://www.bailii.org/ew/cases/EWCA/Civ/2012/1716.html Aviva Insurance Limited v Hackney Empire Limited].

−	[[Category:Contracts_/_payment]] [[Category:Procurement]]	+	[[Category:DCN_Case_Law]] [[Category:DCN_Definition]] [[Category:DCN_Guidance]] [[Category:Contracts_/_payment]] [[Category:Procurement]]

Designing Buildings at 05:43, 19 May 2020

2020-05-19T05:43:11Z

← Older revision		Revision as of 05:43, 19 May 2020
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	These are all pertinent questions for contractors and consultants in these tough times when faced with the decision between giving either bonds or guarantees, or both.		These are all pertinent questions for contractors and consultants in these tough times when faced with the decision between giving either bonds or guarantees, or both.

−	Increasingly ~~in the current economic climate~~, employers, whether domestic or international, are demanding protection against default from contractors and consultants. Seldom were consultants ever required to give such protection to employers, but now particularly for international and public sector clients bonds and guarantees are featuring commonly in the menu of project requirements.	+	Increasingly, employers, whether domestic or international, are demanding protection against default from contractors and consultants. Seldom were consultants ever required to give such protection to employers, but now particularly for international and public sector clients bonds and guarantees are featuring commonly in the menu of project requirements.

	The first thing to bear in mind is that the name of the document can be misleading and does not necessarily accurately describe the nature of document. It is the content of the document that is key. Bonds and guarantees are forms of security that accompany contractual obligations (either building contracts or consultancy agreements), and are based on either primary or secondary obligations.		The first thing to bear in mind is that the name of the document can be misleading and does not necessarily accurately describe the nature of document. It is the content of the document that is key. Bonds and guarantees are forms of security that accompany contractual obligations (either building contracts or consultancy agreements), and are based on either primary or secondary obligations.

Designing Buildings at 16:30, 10 February 2020

2020-02-10T16:30:54Z

← Older revision		Revision as of 16:30, 10 February 2020
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	* Parent company guarantee.		* Parent company guarantee.
	* Performance bonds.		* Performance bonds.
		+	* Professional consultant's certificate.
	* Professional Indemnity Insurance clause in conditions of engagement		* Professional Indemnity Insurance clause in conditions of engagement
	* Professional indemnity insurance.		* Professional indemnity insurance.

Designing Buildings at 13:31, 4 February 2020

2020-02-04T13:31:24Z

← Older revision		Revision as of 13:31, 4 February 2020
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	Follow Najma on Twitter to keep up to date with the latest changes in construction law [https://twitter.com/NDunnett_Cons @NDunnett_Cons].		Follow Najma on Twitter to keep up to date with the latest changes in construction law [https://twitter.com/NDunnett_Cons @NDunnett_Cons].

−	~~= Find out more =~~	+	= Related articles on Designing Buildings Wiki =
−		+
−	=== Related articles on Designing Buildings Wiki ===	+

	* Advance payment bond.		* Advance payment bond.
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	* [[Wuhan_Guoyu_Logistics_Group_Co_Ltd_%26_Anr_v_Emporiki_Bank_of_Greece_SA\|Wuhan Guoyu Logistics Group Co Ltd & Anr v Emporiki Bank of Greece SA (2013)]].		* [[Wuhan_Guoyu_Logistics_Group_Co_Ltd_%26_Anr_v_Emporiki_Bank_of_Greece_SA\|Wuhan Guoyu Logistics Group Co Ltd & Anr v Emporiki Bank of Greece SA (2013)]].

−	=== External references ===	+	= External references =

	* BAILII, [http://www.bailii.org/ew/cases/EWCA/Civ/2012/1716.html Aviva Insurance Limited v Hackney Empire Limited].		* BAILII, [http://www.bailii.org/ew/cases/EWCA/Civ/2012/1716.html Aviva Insurance Limited v Hackney Empire Limited].

	[[Category:Contracts_/_payment]] [[Category:Procurement]]		[[Category:Contracts_/_payment]] [[Category:Procurement]]

Editor at 12:43, 6 March 2018

2018-03-06T12:43:49Z

← Older revision		Revision as of 12:43, 6 March 2018
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	* Surety.		* Surety.
	* Warranty.		* Warranty.
		+	* What is a default?
	* [[Wuhan_Guoyu_Logistics_Group_Co_Ltd_%26_Anr_v_Emporiki_Bank_of_Greece_SA\|Wuhan Guoyu Logistics Group Co Ltd & Anr v Emporiki Bank of Greece SA (2013)]].		* [[Wuhan_Guoyu_Logistics_Group_Co_Ltd_%26_Anr_v_Emporiki_Bank_of_Greece_SA\|Wuhan Guoyu Logistics Group Co Ltd & Anr v Emporiki Bank of Greece SA (2013)]].

Editor at 15:35, 10 January 2018

2018-01-10T15:35:28Z

← Older revision		Revision as of 15:35, 10 January 2018
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	Increasingly in the current economic climate, employers, whether domestic or international, are demanding protection against default from contractors and consultants. Seldom were consultants ever required to give such protection to employers, but now particularly for international and public sector clients bonds and guarantees are featuring commonly in the menu of project requirements.		Increasingly in the current economic climate, employers, whether domestic or international, are demanding protection against default from contractors and consultants. Seldom were consultants ever required to give such protection to employers, but now particularly for international and public sector clients bonds and guarantees are featuring commonly in the menu of project requirements.

−	The first thing to bear in mind is that the name of the document can be misleading and does not necessarily accurately describe the nature of document. It is the content of the document that is key. Bonds and guarantees are forms of security that accompany contractual obligations (either building contracts or consultancy agreements) and are based on either primary or secondary obligations.	+	The first thing to bear in mind is that the name of the document can be misleading and does not necessarily accurately describe the nature of document. It is the content of the document that is key. Bonds and guarantees are forms of security that accompany contractual obligations (either building contracts or consultancy agreements), and are based on either primary or secondary obligations.

−	Examples of primary obligation bonds are simple or on-demand bonds or demand guarantees, where the bondsman pays an amount of money set out in the bond immediately on demand in writing without any preconditions, including the contractor’s liability. On demand bonds tend to be common in international projects but are rarely seen in the UK. They are generally resisted where possible because of their draconian nature.	+	Examples of primary obligation bonds are simple or on-demand bonds or demand guarantees, where the bondsman pays an amount of money set out in the bond immediately on demand in writing without any preconditions, including the contractor’s liability. On-demand bonds tend to be common in international projects but are rarely seen in the UK. They are generally resisted where possible because of their draconian nature.

	Secondary obligation instruments normally comprise guarantees, including parent company guarantees (PCG), or conditional bonds and the bondsman is only liable where a breach of contract has occurred, for example, the contractor is in breach of contract. Due to their nature they are more common in the domestic construction market, and contractors are more likely to provide such forms of security than the on-demand variety.		Secondary obligation instruments normally comprise guarantees, including parent company guarantees (PCG), or conditional bonds and the bondsman is only liable where a breach of contract has occurred, for example, the contractor is in breach of contract. Due to their nature they are more common in the domestic construction market, and contractors are more likely to provide such forms of security than the on-demand variety.
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	Recent cases have assisted in distinguishing between the two forms of security, but of course there are no guarantees the bondsman (or the surety) will meets its liability under the bond should it be called in. The Court of Appeal case of Aviva Insurance Limited v Hackney Empire Limited [2012] EWCA Civ 1716 provided useful guidance on the court’s approach to circumstances where a bondsman’s liability under the bond might be discharged.		Recent cases have assisted in distinguishing between the two forms of security, but of course there are no guarantees the bondsman (or the surety) will meets its liability under the bond should it be called in. The Court of Appeal case of Aviva Insurance Limited v Hackney Empire Limited [2012] EWCA Civ 1716 provided useful guidance on the court’s approach to circumstances where a bondsman’s liability under the bond might be discharged.

−	In this case Hackney Empire (‘Hackney’) had engaged a contractor under a JCT 1998 traditional building contract to undertake renovation works to the old Hackney Empire. The contractor obtained a performance bond from Aviva in favour of Hackney for £1.1m. The contractor fell into delay claiming extensions of time and loss and expense and Hackney faced with the dilemma as to whether to leave the contractor to struggle with financial difficulties and late completion, made advance payments to aid its cash flow and enable prompt completion. These payments were made under a separate side agreement between Hackney and the contractor. Unfortunately, the contractor went into administration and Hackney called in the bond.	+	In this case, Hackney Empire (‘Hackney’) had engaged a contractor under a JCT 1998 traditional building contract to undertake renovation works to the old Hackney Empire. The contractor obtained a performance bond from Aviva in favour of Hackney for £1.1m. The contractor fell into delay claiming extensions of time and loss and expense and Hackney faced with the dilemma as to whether to leave the contractor to struggle with financial difficulties and late completion, made advance payments to aid its cash flow and enable prompt completion. These payments were made under a separate side agreement between Hackney and the contractor. Unfortunately, the contractor went into administration and Hackney called in the bond.

	Aviva resisted payment due to Hackney’s advance payments to the contractor which it claimed discharged it from liability under the bond. The matter reached the Court of Appeal where it was decided that Aviva’s liability as bondsman was not discharged by the advance payments and it remained liable to Hackney for the full amount of the bond. Interesting findings arose from the court’s decision as to circumstances where a surety may be discharged:		Aviva resisted payment due to Hackney’s advance payments to the contractor which it claimed discharged it from liability under the bond. The matter reached the Court of Appeal where it was decided that Aviva’s liability as bondsman was not discharged by the advance payments and it remained liable to Hackney for the full amount of the bond. Interesting findings arose from the court’s decision as to circumstances where a surety may be discharged:
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	* Advance payment bond.		* Advance payment bond.
	* Appointing consultants.		* Appointing consultants.
		+	* Bid bond.
	* Bonds.		* Bonds.
	* Breach of contract.		* Breach of contract.

Editor at 15:21, 12 December 2017

2017-12-12T15:21:49Z

← Older revision		Revision as of 15:21, 12 December 2017
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	Recent cases have assisted in distinguishing between the two forms of security, but of course there are no guarantees the bondsman (or the surety) will meets its liability under the bond should it be called in. The Court of Appeal case of Aviva Insurance Limited v Hackney Empire Limited [2012] EWCA Civ 1716 provided useful guidance on the court’s approach to circumstances where a bondsman’s liability under the bond might be discharged.		Recent cases have assisted in distinguishing between the two forms of security, but of course there are no guarantees the bondsman (or the surety) will meets its liability under the bond should it be called in. The Court of Appeal case of Aviva Insurance Limited v Hackney Empire Limited [2012] EWCA Civ 1716 provided useful guidance on the court’s approach to circumstances where a bondsman’s liability under the bond might be discharged.

−	In this case Hackney Empire (‘Hackney’) had engaged a contractor under a JCT 1998 traditional building contract to undertake renovation works to the old Hackney Empire. The contractor obtained a performance bond from Aviva in favour of Hackney for £1.1m. The contractor fell into delay claiming extensions of time and loss and expense and Hackney faced with the dilemma as to whether to leave the contractor to struggle with financial difficulties and late completion, made advance payments to aid its cash flow and enable prompt completion. These payments were made under a separate side agreement between Hackney and the contractor. Unfortunately, the contractor went into administration and Hackney called in the bond. Aviva resisted payment due to Hackney’s advance payments to the contractor which it claimed discharged it from liability under the bond. The matter reached the Court of Appeal where it was decided that Aviva’s liability as bondsman was not discharged by the advance payments and it remained liable to Hackney for the full amount of the bond. Interesting findings arose from the court’s decision as to circumstances where a surety may be discharged:	+	In this case Hackney Empire (‘Hackney’) had engaged a contractor under a JCT 1998 traditional building contract to undertake renovation works to the old Hackney Empire. The contractor obtained a performance bond from Aviva in favour of Hackney for £1.1m. The contractor fell into delay claiming extensions of time and loss and expense and Hackney faced with the dilemma as to whether to leave the contractor to struggle with financial difficulties and late completion, made advance payments to aid its cash flow and enable prompt completion. These payments were made under a separate side agreement between Hackney and the contractor. Unfortunately, the contractor went into administration and Hackney called in the bond.
		+
		+	Aviva resisted payment due to Hackney’s advance payments to the contractor which it claimed discharged it from liability under the bond. The matter reached the Court of Appeal where it was decided that Aviva’s liability as bondsman was not discharged by the advance payments and it remained liable to Hackney for the full amount of the bond. Interesting findings arose from the court’s decision as to circumstances where a surety may be discharged:

	* (i) Where parties to a contract have varied the terms of that contract without the surety’s consent.		* (i) Where parties to a contract have varied the terms of that contract without the surety’s consent.
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	The court’s reasoning fell within (ii) above in that the advance payments made to the contractor were outside the terms of the original contact and for extraneous reasons; the payments were not part of the original contract sum nor were they certified as due by the architect. Aviva’s liability as surety only related to the original building contract.		The court’s reasoning fell within (ii) above in that the advance payments made to the contractor were outside the terms of the original contact and for extraneous reasons; the payments were not part of the original contract sum nor were they certified as due by the architect. Aviva’s liability as surety only related to the original building contract.

−	Practically, the safe course may be to ensure explicit consent is obtained from a surety if advance payments are considered and an appropriately drafted indulgence clause in the contract. Such clauses recognise potential variations to the contract and maintain the surety’s liability in these instances. Alternatively, advance payments made via side agreements outside the contract could be considered, as any variation to the original contract itself could still discharge the surety.	+	Practically, the safe course may be to ensure explicit consent is obtained from a surety if advance payments are considered and an appropriately drafted indulgence clause in the contract. Such clauses recognise potential variations to the contract and maintain the surety’s liability in these instances.
		+
		+	Alternatively, advance payments made via side agreements outside the contract could be considered, as any variation to the original contract itself could still discharge the surety.

	-----		-----
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	* Retention bond.		* Retention bond.
	* Surety.		* Surety.
−	* [[Wuhan_Guoyu_Logistics_Group_Co_Ltd_~~&_Anr_v_Emporiki_Bank_of_Greece_SA~~\|Wuhan Guoyu Logistics Group Co Ltd & Anr v Emporiki Bank of Greece SA (2013)]].	+	* Warranty.
		+	* [[Wuhan_Guoyu_Logistics_Group_Co_Ltd_%26_Anr_v_Emporiki_Bank_of_Greece_SA\|Wuhan Guoyu Logistics Group Co Ltd & Anr v Emporiki Bank of Greece SA (2013)]].

	=== External references ===		=== External references ===

Editor at 15:22, 6 January 2017

2017-01-06T15:22:20Z

← Older revision		Revision as of 15:22, 6 January 2017
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	* Retention bond.		* Retention bond.
	* Surety.		* Surety.
−	* Wuhan Guoyu Logistics Group Co Ltd & Anr v Emporiki Bank of Greece SA (2013).	+	* [[Wuhan_Guoyu_Logistics_Group_Co_Ltd_&_Anr_v_Emporiki_Bank_of_Greece_SA\|Wuhan Guoyu Logistics Group Co Ltd & Anr v Emporiki Bank of Greece SA (2013)]].

	=== External references ===		=== External references ===

Editor at 15:21, 6 January 2017

2017-01-06T15:21:50Z

← Older revision		Revision as of 15:21, 6 January 2017
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	* Retention.		* Retention.
	* Retention bond.		* Retention bond.
		+	* Surety.
	* Wuhan Guoyu Logistics Group Co Ltd & Anr v Emporiki Bank of Greece SA (2013).		* Wuhan Guoyu Logistics Group Co Ltd & Anr v Emporiki Bank of Greece SA (2013).