CONSTRUCTION PROJECT GUARANTEES
Finding a Fair Guarantee for a Project
T
he impact of COVID-19 pandemic has left no African economy unscathed, resulting in a slowdown, which in some sectors, as commentators have predicted, may take years to recover to - what can be termed ‘normal’ levels. And in the construction sector, this is situation is no exception. It is no longer ‘raining’ projects as before; projects are only coming in dribs and drabs. Thus, this calls for employers (project owners) and contractors involved in complex or major projects to work together in order to deliver on time, within budget and to the expected standards better than ever before.
undertaken in terms of the construction contract or the principal building agreement (PBA). Of course, the dilemma they are likely to face is telling the wheat from the chaff amongst scores of construction guarantee offerings out there, with every service provider proclaiming have ‘the best and proven’ solutions. At the outset, the need for contractors to be more prudent as they cherry-pick a 'fair' guarantee becomes clear considering the scope of construction guarantees and their contractual implications. Impulsive decisions may leave them very susceptible to being short-changed by employers.
The need to be clued-up The scope of construction guarantees For contractors who do the actual ‘dirty’ work on site, the stakes could not have been higher. This should prompt them to be more clued up than before on the risks they may face and their implications on the ability to deliver on a project. This is because the reality is that no matter how consistently committed contractors may be to the project, there could be some unforeseen circumstances that could prevent them from performing as expected. For this reason, they have to be very conversant with the scope of the construction guarantees to the owner (employer) guaranteeing the contractor’s performance
Contractors involved in projects in Africa should apply thorough due diligence when choosing a construction guarantee to cover an employer’s interest in a project, not least in the current economic climate.
Under the PBA, construction guarantees are used to indemnify (cover) the employer against damages suffered in the event of the contractor defaulting. Short-term insurance companies (or guarantors) issue construction guarantees on behalf of contractors to provide a benefit to employers. In South Africa, this governed by terms of the Short-Term Insurance Act, which defines a guarantee policy as “A contract in terms of which a person, other than a bank, in return for a premium, undertakes to provide benefits if an event, contemplated in the policy as a risk
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May/June 2021 | CR
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