Early bond release key to averting industry surety crisis

Aaron Morby 4 weeks ago

The construction bond market squeeze will force clients and contractors to rethink their working practices.

Where client variations take project work above agreed contract values, bonds should be released and then rewritten to cover the smaller balance of extra work required.

This would free-up needed capacity in the market said bond broker DRS Bond Management.

A shortage of available bond capacity is now threatening to delay project starts.

The situation has been building up to crisis point over the last two years.

In this time six big surety bond providers have pulled out of the construction market, the latest being QBE.

While new entrants like Accelerant, Advent and Mitsui have helped to bring in new capacity, the dozen or so surety bond providers left are not meeting present demand.

Chris Davies, managing director of broker DRS Bond Management, said part of the problem is bonds have become seen as a risk tool in the market rather than a growth regulation tool.

He added that the major contractor collapses of Buckingham Group, Henry Projects and Readie had impacted on the appetite in the market.

Davies said: “Undoubtedly, there is now more demand than supply, which is also putting upward pressure on premium rates.

“The time has come for contractors to have robust conversations with clients about releasing bonds.

“Where projects are overrunning due to client variations for additional works, bonds should be released at the previously agreed contract value. Fresh bonds can then be issued for the smaller balance of extra works, if needed.

“This would release much-needed capacity at present.”

Davies added: “It not time to reinvent the wheel here, the mantra remains don’t overtrade assets, retain strong levels of cash and negotiate hard on the contract conditions you sign up to.”

One major bond provider said: “The market has had a rough couple of years but has traded profitability over the long term so will always have capacity even if the providers change.

“Contractors need to talk as early as possible to bond providers and form a relationship with them. Well-run firms will always find capacity.”

One major subcontractor added: “This marks a significant shift in the construction landscape.

“Financial stability is no longer optional—it’s essential for the health and longevity of the construction sector.”



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