One of the most frequent problems in international construction projects (and more generally in international commerce) is represented by the issue of bonds or guarantees that the Employer requests to secure the performance of the contract. The purpose of said bonds is to guarantee the Employer that he will recover any loss or damage that it might suffer as a consequence of the breach of the Contractor.
In international construction projects, it is rather standard that the Contractor starts the mobilisation/procurement just after an advance payment has been paid by the Employer. But how does it work and how can you negotiate it at your best?
In construction contracts, disputes are extremely
The Bid Bond guarantees the Employer that the bidder will sign the contract, if awarded, or will comply with other specified obligations (such as to issue other bonds as provided in the bidding documentation). They are rather frequent, especially in mid/big size projects.
The Warranty Bond is a guarantee which secures the Employer in the case the Contractor will not remedy the defects, if any, which may occur during the warranty period of the works.
It is often issued by an insurance company or (especially in mid size international projects) by a bank and it provides the payment of a sum of money if the Contractor will not perform any remedial work as provided in the contract, a sum which will be used by the Employer to have the remedial works carried out by a third party.
Bonds in construction contracts are often a pain point for Contractors. Especially in international construction projects they are frequent and are used to protect in a way or another the Employer from various breaches and non-performance of the Contractor.
Construction bonds are however rather risky for the Contractor especially if they are issued in the form of an on-demand bond.