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On-demand bonds hit small builders
00:00 04 Aug 1994
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Local authorities are imposing on demand bonds on small specialist
contractors for minor maintenance contracts despite the
recommendation of the John Gummer, Secretary of State for the
Environment, that such bonds should be outlawed.
The specialists claim that the onerous requirement - which allows a bond of around 10% of the contract value to be called in by the client without regard to the performance - has been introduced to ease the financial pressure on cash strapped clients.
The bonds - which can be up to 20% of contract value - are now being applied to contracts as small as œ100,000.
Several London boroughs - including Lambeth and Westminster - are accused of following the practice, along with Epping Forest in Essex and the city councils of Edinburgh and Leeds.
Casec chief executive Rudi Klein said: 'It is an extraordinary development. Maintenance contracts already provide for local authorities to guard against poor performance so there is absolutely no need for them.
'I'm horrified at their spread. This is happening at the very time when Sir Michael Latham said on-demand bonds shouldn't be used. Local authorities should drop these requirements - they are adversarial and are unrelated to performance.'
Lambeth council denies that their bonds can be called on demand, saying that they are purely performance related. If the contractor defaults, the bond is called.
But Lambeth's contract says 'the surety shall discharge on demand the damages sustained by the authority up to the amount of this bond'.
Brian Parry, chairman of the Heating and Ventilating Contractors Association's service and maintenance group, said: 'Many bonds are written in obscure language, giving a council the opportunity to call in the bond just because it was short of money.'
Parry said he would like to see a standard wording of maintenance contracts.
Nigel Hambley, operations manager with Haden Maintenance, said: 'On-demand bonds are just one of many onerous charges building up on us. We need pressure on consultants and local authorities to try to eliminate them. It's all protection for the client and none for the contractor.'
The specialists claim that the onerous requirement - which allows a bond of around 10% of the contract value to be called in by the client without regard to the performance - has been introduced to ease the financial pressure on cash strapped clients.
The bonds - which can be up to 20% of contract value - are now being applied to contracts as small as œ100,000.
Several London boroughs - including Lambeth and Westminster - are accused of following the practice, along with Epping Forest in Essex and the city councils of Edinburgh and Leeds.
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Casec chief executive Rudi Klein said: 'It is an extraordinary development. Maintenance contracts already provide for local authorities to guard against poor performance so there is absolutely no need for them.
'I'm horrified at their spread. This is happening at the very time when Sir Michael Latham said on-demand bonds shouldn't be used. Local authorities should drop these requirements - they are adversarial and are unrelated to performance.'
Lambeth council denies that their bonds can be called on demand, saying that they are purely performance related. If the contractor defaults, the bond is called.
But Lambeth's contract says 'the surety shall discharge on demand the damages sustained by the authority up to the amount of this bond'.
Brian Parry, chairman of the Heating and Ventilating Contractors Association's service and maintenance group, said: 'Many bonds are written in obscure language, giving a council the opportunity to call in the bond just because it was short of money.'
Parry said he would like to see a standard wording of maintenance contracts.
Nigel Hambley, operations manager with Haden Maintenance, said: 'On-demand bonds are just one of many onerous charges building up on us. We need pressure on consultants and local authorities to try to eliminate them. It's all protection for the client and none for the contractor.'
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