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. 

In international construction projects, it is standard practice for the Employer to request guarantees to secure the performance of the Contractor. The most frequent guarantees are the bid bond, the advance payment bond, the performance bond and the warranty bond. Let’s see the features of each of them and then the form that they usually have in the practice. 

The construction industry has always been characterised by a high volume of disputes for several reasons. The 2017 Arcadis report highlights some interesting findings based on their engagements in the Middle East over the previous twelve months. Arcadis (the well-known and authoritative consultancy firm) observed an increase in the number of disputes in the Middle East, which has certainly been influenced by the current economic situation in GCC countries. 

According to the most recent report issued by Deloitte, infrastructure investment in the GCC has remained high in the last three consecutive years and registered a record number in 2014 at US$171 billion.

There is a realization from governments of the dependence of their economies on public spending on projects and the necessity to maintain a certain level of spending and activity so as not to undermine future growth.