'Bonds continue to be agreed and issued’ - leading provider sets record straight on surety bond availability in lockdown
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'Bonds continue to be agreed and issued’ - leading provider sets record straight on surety bond availability in lockdown

A LEADING provider of surety bonds claims the product continues to be readily available to contractors despite the impact of the coronavirus pandemic on the construction industry.

In a statement issued this week, DRS Bond Management, the largest independent surety bond brokerage in the UK and Ireland, said: “Despite the severity of the Covid-19 pandemic and its commensurate impact on the global economy, the UK and Ireland Surety market is not failing.

“Whilst Sureties are underwriting with high levels of financial due diligence, bonds continue to be agreed and issued.”

The firm was responding to a recent media report which claimed contractors were having difficulties obtaining the necessary performance bonds to underwrite their construction projects.

DRS insists the reality is that while capacity flow was “restricted” in the first few weeks of lockdown in Britain, “bonds continued to be issued, including bonds in excess of £1million”.

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They add: “As the Covid-19 horizon begins to settle, capacity is steadily increasing in line with many sites re-opening (albeit with reduced productivity).

“Sureties have maintained high levels of financial due diligence so lead in times for agreeing and issuing bonds have increased.”

The organisation went on to reveal that they have arranged a number of multi-million pound/euro bonds during lockdown, for firms in Britain and Ireland, with the largest being worth €8million.

But some of their processes have changed during the crisis.

“Bond wording acceptance has tightened,” they admit.

“Sureties’ start points are conditional on default bonds.  Their willingness to flex to incorporate being bound by an adjudicator’s decision without recourse or having to make an interim payment of up to 100 per cent of bond sum following contractor insolvency have reduced but will be considered commensurate with the strength of the applicant’s financial covenant.”

They added: “Where Sureties are asked to forego their rights of recourse under their Counter Indemnity (“Priority of Claims”) or even more onerously, are asked to accept a primary obligation under the bond, (which in itself is a contract guarantee and therefore a secondary obligation), these are being strongly resisted.”

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They have also seen an increase in premium rates due to the economic uncertainty around Covid-19.

“As a result of the losses sustained due to contractor insolvencies, particularly in Q4 2019 and Q1 2020, combined with the economic uncertainty resulting from Covid-19, premium rates are trending upwards,” DRS confirms.

“Sureties are not applying ‘across the board’ increases as yet and each applicant is considered based on the strength of their financial covenant and the loss experience in their sub sector.”

Regarding their services, they added: “There are more than 15 sureties operating in the UK who are “Investment Grade” (“A-“ Standard & Poor’s or equivalent with other ratings agencies).  There are four main reinsurers who sit behind the sureties who account for over 90 per cent of reinsured business.  DRS continues to only source Performance, Retention and Advance Payment Bonds from “Investment Grade” Sureties.”

For any contractors out there in need of assistance in these matters, DRS added: “We would welcome the opportunity to speak with contractors who are experiencing difficulty in accessing the capacity they need.”

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