Dáil Éireann debate -
Wednesday, 10 May 2000

Vol. 518 No. 6

Written Answers. - Performance Bonds.

Paul McGrath

Question:

389 Mr. McGrath asked the Minister for the Environment and Local Government if contractors undertaking works funded by his Department, but under contract to a local authority, are required to provide a bond with that authority to cover those works; if it is obligatory that such a bond be provided or if an alternative arrangement can be made; if he will outline such acceptable alternatives; and if he will make a statement on the matter. [12799/00]

Minister for the Environment and Local Government (Mr. Dempsey)

I should explain at the outset that the purpose of a performance bond is to provide the private or public sector client with a measure of financial protection from a third party – usually a bank or insurer – against any failure by the contractor to satisfactorily complete a project.

Guidelines on bonding requirements for public sector clients are set out in paragraph 4.9 of Public Procurement – 1994 Edition, published by the Department of Finance-Government contracts committee. These guidelines indicate that performance bonds should not normally be required for main contracts below £200,000. The guidelines generally require performance bonds for main contracts in excess of £200,000.

Performance bonds are normally for 25% of the value of the contract. However, the requirement for a bond, and the level of the cover required on individual projects, is at the discretion of the contracting authority, having regard to all factors concerning the project-contractor and the need to protect the financial interests of the authority. Where an authority decides to waive the normal bonding requirement, the retention sum withheld from the contractor – pending satisfactory completion of the project – is usually increased, with the agreement of the contractor.

Paragraphs 5.8 and 5.9 of the report of the Strategic Review Committee on the Construction Industry – Building Our Future Together, 1997 – contained recommendations designed to ease performance bonding requirements. The Forum for the Construction Industry currently plan to arrange for implementation of these and other construction procurement recommendations with effect from 1 September 2000.

Copies of the Guidelines on Public Procurement, 1994, and the report of the Strategic Review Committee on the Construction Industry, 1997, have been placed in the Oireachtas Library.