Firms warn of performance bonds freeze

Aaron Morby 2 years ago
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Contractors are warning of growing difficulties obtaining performance bonds for private and public sector projects.

Firms say that specialist insurers are shying away from providing bonds to any but the strongest of contracting companies.

Bond providers blame their caution on significant claims from the wave of failures caused by Brexit project delays and concerns about the fallout from a post-coronavirus recession.

The difficulty has prompted the chairman of one regional contractor to call on ministers to tackle the problem with an alternative Government guarantee system.

Jonathan Wildgoose of Derbyshire-based Wildgoose Construction, said: “Our experience is now that these insurers are now very nervous to offer bonds to all but the strongest of contracting companies due to the significant claims they are currently dealing with and of course they are very worried about the what effects that the anticipated coronavirus recession will have on the industry.”

His concern has been echoed by firms in the civil engineering sector.

“We are seeing some evidence of hardening in the market for performance bonds at the moment, largely among small and medium-sized firms”, warned CECA chief executive Alasdair Reisner.

“While it is not the biggest challenge that is being faced by the sector at the moment, it is an issue that might catch the industry out as it returns to work, potentially cutting off the green shoots of recovery if these firms cannot secure the bonds that they need to deliver.”

Reisner added: “We are keen to get a sense of whether this is an issue that is faced widely across the industry.”

Wildgoose called on Government to step in and help during an online meeting between the National Federation of Builders Large Contractors Forum and construction minister Nadhim Zahawi.

He urged the Government to step in to underwrite project bonding requirements, by setting up an organisation similar to the export credit agency.

He said: “Setting up of an organisation similar to the export credit agency, which steps in for exporters, could offer an realistic alternative to the private and battered insurance industry.”

Zahawi said: “We recognise the importance and seriousness of the issue and issues like these including insurers providing trade credit which is another area I’m looking at and we are working across Government to look at the best solutions available.”

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