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.There are essentially three types of bonding in use: bid bonds, paymentbonds, and performance or completion bonds.Bid BondsThe purpose of the bid bonds is to guarantee the validity of the lowestbid, so that the project buyer can rely on the lowest bid.In the event that thelow bid is accepted, but the bidder refuses to accept the contract award, thebonding company is liable for any difference between the lowest bid amountand the next lowest bid amount.Payment Bonds: labor, materials, subcontractorsThese types of bonds protect the unpaid laborers, trades-people,suppliers, and subcontractors for the work they have performed on projects.It guarantees them payment, in the event that the seller fails to makepayment.Completion (Performance) BondsWhen one thinks of bonding agreements as used in construction178 Project Procurement Managementprojects, one typically thinks of guarantees of completion of the project.These obligations go by two titles, completion or performance bonds.They are defined as follows:Completion Bond.A form of surety or guaranty agreement whichcontains the promise of a third party, usually a bonding company,to complete or pay for the cost of completion of a construction con-3tract if the construction contractor defaults.Performance Bond.Type of contract bond which protects againstloss due to the inability or refusal of a contractor to perform hiscontract.Such are normally required on public construction4projects.The bonding company, an insurance company, bank, or other lendinginstitution typically provide such seller bonding.Question: why is it that seller/constructor bonding is used ongovernment funded construction projects, but rarely ever used inprivately financed projects? Could it be the cost of the bonding? Quitepossibly.More likely, it is the fact that the owners in the private sectordo not see the benefit to be gained from requiring bonds from theseller/constructors.In the event that a constructor fails to complete a job,the surety is then obligated to find another constructor who will completethe project.Unfortunately, sometimes the replacement contractor isworse at performing than the one who walked away from the originaljob.Supplier claims and disputes are common in this environment.A crusty old constructor manager in the commercial sector onceremarked to the author: "There is no substitute for a well qualified, rep-utable, and responsible seller, and all the bonds in the world will not makea difference."3.Black's Law Dictionary, (St.Paul, Minnesota-.West Publishing Company).4.Black's Law Dictionary, (St.Paul, Minnesota: West Publishing Company).Legal Aspects of Project Procurement Management 179Special Contractual TermsThere are a number of critical issues which come into play betweenbuyer and seller, of which the project manager and team are usually neveraware.They are provisions quietly inserted into procurements by the buyingprofessionals assigned to support the project.Nevertheless, these terms andconditions, (T &C Cs), are an important part of project procurements.We need to review a small sampling of the more important T & Cs asused in procurements.Special Term: "Time is of the Essence"Most project performance is time sensitive.The project must becompleted by a certain date.When any project has procured components orservices which are critical for its completion, and the project is dependenton the performance of a seller to complete the project, many firms rely on a"time is of the essence" clause to be inserted into the contract to emphasizethat time is critical.When the term "time is of the essence" is inserted into a contract,performance by all parties as scheduled is strictly required.If the seller is todo something by a certain date, or if both buyer and seller have specificdates to meet, and they fail to meet them, their failure to perform preciselyon time constitutes a breach of contract.In order for time to be critical in a contract, the contract mustincorporate the phrase "time is of the essence" in this contract.If this phraseis not incorporated, time is felt to be important, but not fatal to performanceon the contract.Suggestion: take care in inserting this provision in any contract [ Pobierz całość w formacie PDF ]