Project managment

Bond, insurance, etc.

When preparing contract documents a number of matters of contractual importance must be considered. These will usually be dependant on the employer’s preferences or any regulations under which he must operate, the type of work involved and the financial liabilities arising out of the work. Some of these  matters are considered below. For the standard ICE conditions entries will be required in the appendix to the Form of Tender but for the ECC conditions it will be necessary to decide which options are to be included as part of the conditions of contract as well as making appropriate entries in the Contract Data.

The Defects Correction Period must be stated. This is the period during which the contractor must repair any defects in the works resulting from his workmanship. The period is usually 52 weeks for major construction but may be more or less depending on whether there is running plant involved or how soon defects may become apparent.
A Performance Bond is usually required where the employer feels he needs financial protection against a contractor failing to complete the works either due to lack of resources or financial instability. The size of the bond should cover having to re-tender and any extra costs to complete. The value should thus be chosen to suit the work but should not generally exceed 10 per cent of the value of works. Bonds are, however, relatively expensive to supply and thus put up prices and so may be considered unnecessary if the contractor is substantial, or part of a large group who can supply a parent company guarantee.
Insurance against third party risks needs to have a value set with reference to the likely risks of damage. In a rural area this may be small, but works near a major industrial complex may need a higher level of cover. Normally it is the contractor who provides insurance cover both for the works and third parties but sometimes employers prefer to provide these insurances to save costs.
This can lead to problems when the cover provided does not fully represent the risks which arise.
The Time for Completion of the works should be set at a reasonable period given a proper level of resources. In many cases there will be a need for sections of the works to be defined and separate times for completion to be set for each of these. Sections may be needed if other contractors are to have access to the site (e.g. for plant installation) or if parts of the works are needed early.
Since the employer will be kept from using his works and may incur other costs if the contractor fails to complete on time it is usual to set liquidated damages to compensate him for his loss. These must be calculated as a genuine pre-estimate of the loss based on the value of the works output and other costs anticipated.
Most contracts provide that a portion of the money due to a contractor each month be retained by the employer. This retention has to be set and is usually a percentage (often 5 per cent) of the value of works certified up to a limit. The intention is to provide cover for defects and outstanding work but retention is unpopular with contractors who point out that bonds and money yet to be certified for payment provide funds should this be necessary.

Related Articles

Close