PERFORMANCE BONDS AND GUARANTEES: CONSTRUCTION OWNERS AND PROFESSIONALS BEWARE
Performance bonds and guarantees have been the subject of considerable litigation in recent years in not only the United Kingdom but also some other common law jurisdictions. The aim of this research is to identify the issues most commonly in dispute and the legal principles governing their resolution. Possession of knowledge of the issues and principle should alert the construction and engineering industries and their legal advisers to the matters that need serious attention in the drafting and negotiation of these instruments. Clarity in the legal principles should also contribute to a reduction in litigation. The issues identified include whether an instrument is a conditional or an on-demand bond, the effect of failure on the part of the beneficiary to give notices, availability of an injunction to restrain the surety from paying after a call has been made by the beneficiary, availability of an injunction to restrain a beneficiary from receiving payment after a demand has been made, availability of an injunction to restrain a beneficiary from making claim, availability of a Mareva injunction to freeze the fruits of a call, meanings of certain phrases used in the instruments, and a duty to account for proceeds of a call. The principles governing their resolution were also identified. Particular attention must be paid to any ambiguity whether a surety is liable is always construed in the surety's favor, and prejudicial conduct by the beneficiary releases the surety unless the instrument provides expressly to the contrary.
Law of Guarantees
Definitions and characteristics. Contractual requirements. Formal requirements. Construction. Vitiating elements in the contract. The liability of the surety. Enforcement of contracts of suretyship. Revocation of contracts of suretyship. Discharge of the surety. Rights of the surety against the principal. Rights of the surety against the creditor. Rights of the surety against co-sureties. Insolvency. Bank guarantees and related transactions. International commerce. Performance bonds. Consumer credit transactions. Landlord and tenant. Precedents. Appendix legislation.
Contractor Failure: Analysis
The possibility exists for any construction contractor to fail to filfill the contract requirements associated with a facility. Contractor failure occurs when a contractor is unable to perform his/her contractual duties, thus requiring the facility owner to invoke the contract's nonperformance clause. This paper provides aggregate contractor business failure statistics and outlines potential causes for failure. A framework to identify and quantify the associated costs is also introduced. Several case studies are presented to examine the cause and cost of failure and the means by which the facilities were completed. Alternatives available for project completion when contractor failure occurs are discussed. Recommendations to identify and monitor contractors at high risk for failure are outlined as well. This paper provides facility owners with a greater awareness of the possibility of contractor failure, how to quantify costs of contractor failure, and avoidance techniques.