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Construction Law/Failure to submit Performance bond


QUESTION: I have urgent works over a duration of 3months valued at $8m through a design and build.The preferred supplier is failing to raise a bond and there is no time to terminate and start over.What options do I have as an employer?

ANSWER: Dear Mpho,

You are between the rock and the hard place.  Without more details, it is difficult to give a definitive answer.  You don't mention the form of contract nor the applicable law, so the following comments are generic.  What can you do to persuade the contractor to submit his bond?  Perhaps you should talk to him to see why he is delaying the submission.  You may be able to accommodate the reason for his reluctance.  

You don't have a lot of time.  It is a matter of risk.  I don't think that any contractor could do US$ 8M of work on design and build in 3 months, considering mobilisation times for resources, unless perhaps if it was some item of plant, where much of the equipment is standard.  Still, to design $8M worth of construction is going to take time.  Thus it is understandable that the contractor hesitates to submit a performance bond.  If there was more than one bidder, then you could approach the second and third lowest bidder and ask them if they wish to sign a contract.  You have to consider your risk.  What happens if the project is delayed or does not perform as specified?  How much will it cost you?  Then you choose the option that has the lowest risk/cost for you.  

---------- FOLLOW-UP ----------

QUESTION: The form of contract is FIDIC yellow 1999 and the applicable law is English.
The works are for modular buildings (prefabs which are all standard) and the designs are complete.These are fairly easy to construct as it involves a raft slab and panelling.

Dear Mpho,

The answer is the same - Talk to the Contractor and find out what is the problem.  

It may be a simple project, but the quantity is the problem.  I guess that he will do $2M in the first month, $4M in the second month and $2M in the third month.  That sort of cash flow required good financial resources, even if he has an advance payment.  He will have 3-500 people involved in the project, even if they are prefabbing the units off site.  Consider how much concrete he has to pour in two months and the source of supply. Difficult.  If he does not have the panels made and stored already, he will need a big factory or factories. And then there are the logistics of delivering the panels to site and erecting the panels.  I had to build a camp in the desert and it took us three months just to build the camp for the workers, who would erect the camp, but my boss did try to save money, which meant the work took longer.  I know that it could be done, but it will be difficult.  

Again talk to the contractor or accept that you will not get a performance bond and go ahead.  What are your risks?  That the units are not finished on time - highly likely.  That the concrete is non-compliant - highly likely. That the units are non-compliant - leaks or holes or badly fitting doors and windows - highly likely.  So prepare an exit plan to minimise your risk, even to the extent of getting the new occupants to do part of the work.  

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Peter M. Elliott


First response to queries regarding extensions of time, variations orders, site instructions and payment using FIDIC and other forms of Conditions of Contract, based on English Law, and derivatives only. Anyone who needs advice about EoT should download and study the SCL Delay & Disruption Protocol before submitting a question.


Value . . .
It's unwise to pay too much, but it's unwise to pay too little. When you pay too much you lose a little money, that is all. When you pay too little, you sometimes lose everything, because the thing you bought was incapable of doing the thing you bought it to do.
The common law of business balance prohibits paying a little and getting a lot. It can't be done. If you deal with the lowest bidder, it's well to add something for the risk you run.
And if you do that, you will have enough to pay for something better.
. . . John Ruskin (1819 - 1900)
"We are too poor to buy something cheap"
.Romanian Proverb 2002
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I said it in Hebrew, I said it in Dutch,
I said it in German and Greek:
But I wholly forgot (and it vexes me much)
That English is what you speak!" Hunting of the Snark - Lewis Caroll
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The joy of food lasts but an hour, of sleep but a day, of a woman, but a month, but the joy of a building lasts a lifetime. Syrian proverb.
Comments and observations leading to improvements in the translation of FIDIC Red & Yellow books into Romanian prior to approval by FIDIC (reference 'Preface to the Romanian edition')

Institution of Civil Engineers, Association of Chartered and Certified Accountants, Society of Construction Law, Dispute Resolution Board Foundation

B Sc(Hons) in Civil Engineering

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