Construction projects can carry higher levels of risk than other commercial ventures because of the cost, time and number of parties involved.
For this reason, it is exceptionally important that work is completed on time and to the required standard. If it is not, this can result in significant delays and even danger to site users.
There are many forms of guarantees that may be requested on a construction project sometime referred to as bonds are a common feature of construction contracts to ensure this quality is delivered by contractors every time.
Including guarantees in your contract
A guarantee is a legal assurance that certain work or materials provided during the construction project will meet specific standards or requirements – designed to protect the investment of investors and developers.
In the context of work quality and delivery, a guarantee will usually take the form of a performance bond – ensuring the contractor meets agreed-upon project standards and timelines, with a financial penalty if this is not achieved.
These guarantees can be issued by the contractor and are often backed by a third-party guarantor, such as a bank, depending on the terms of the contract.
Guarantees can usually be fulfilled through financial compensation, requiring the guarantor or contractor to pay the client an agreed sum to cover the cost of correcting the defects or completing the work to the proper standard.
Negotiating a guarantee
There are several things you need to consider when including a guarantee in your construction contract, including:
- The type of scope of the guarantee
- The cost of guarantee
- Details of any guarantors
- The legal obligations and rights of the contractor and client
- Expectations of the projects – i.e. to what standard does the work need to be completed?
Once these have been agreed upon, they will all need to be detailed in your agreement and monitored for compliance.
Guarantees can be and are enforced, so it is important for the contractor and the client to understand their agreement and potential penalties for non-delivery of services.
All parties affected by the guarantee agreement should seek independent legal advice and have the contract reviewed to ensure it is legal, valid and enforceable.
For further advice on guarantees in construction contracts, please contact our team.