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 2016 Report from the Italian Association of Contractors shows that international construction projects are a big portion of their revenues. The Report highlights also that this is a trend which involves not only the big companies but also the SME companies.

The analysis of the domestic and international revenues has been conducted on 38 Italian companies (with turnover between €50 Million and above  €500 Million) and clearly shows an increase in international construction projects and at the same time a decrease of the revenues generated domestically. 

In mid-big sized projects, it is a crucial to understand how to subcontract part of the works especially in an international construction project. The various issues involved in subcontracting part of the works can determine the success or the failure of a project and/or can massively increase the financial risks and/or losses for either the Employer or the Contractor.