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Survey shows hike in value of performance bonds

The value of performance bonds has soared following the financial crisis, according to a new survey.

A survey of underwriters and brokers by Law firm Gateley saw two thirds of respondents say that surety bonds they had issued in the last two years had been increasing in value.

CN reported in March how contractors were rallying against the creeping use of bonds that can be claimed by clients without court action.

In the latest survey, sixty per cent of underwriters and brokers surveyed said the value of performance bonds they had issued to clients over the last two years had been between £50 million and £250m, with values increasing significantly during that time.

The firm said surety bonds, which are a collateral deposit issued by a third party such as an insurance company or bank to guarantee the satisfactory completion of a project, typically cover 10 per cent of a contract’s value.

Ninety per cent of those surveyed believed that companies are more likely to require a bond following the financial crash of 2008.

Karen Spencer, partner in the construction division at Gateley in Manchester, said: “Many companies have long seen the benefits of using surety bonds, but the demand for them has certainly increased over the last two years.

“The bond can provide extra security for businesses engaged in long-term projects and they can also release more capital into development schemes.”

Dave Mackie, group business development director at CBG Group, an independent insurance broker and financial services intermediary, added: “Developers have become more sensitive to potential contractor failures and underwriters are more selective with the contractors they will provide a bond for.

“Both these factors have caused an increase in bond requirements, coupled with an increase in the price of applicable bonds, as all parties continue to feel apprehensive about the financial climate.”

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