25th November 2024 - Navigating the Complexity of Surety Bonds: Why Precise Wording Matters in Construction Contracts

Surety bonds are a curious mix of a legal deed and a quasi financial instrument.

Whilst there are standard forms of bond wording, (known as the Association of British Insurers (“ABI”) Model Forms), lawyers acting for Employers typically amend them or replace them completely with their own form of words.

Following the frequency and severity of insolvencies in the Construction sector over the last couple of years, sureties have become much less accommodating of significant deviations from conditional/“on default” bond wordings.

It is incumbent upon the claimant to prove the Contractor is in breach of contract and that such breach has resulted in financial loss.

Surety bonds are a secondary obligation in that before the bond may be called upon, the surety may offset both accrued retention and the value of outstanding certified payments owed to the contractor.

Bond wordings are constantly evolving and sureties are paying much closer attention to contract amendments that by stealth affect their ability to defend a claim or assess quantum.

As part of the service we provide, DRS will check your bond wordings at tender/pre-contract stage to ensure in principle budget and wording certainty.

Please feel free to contact us should you have any queries.