Evaluation of the effect of suretyship on rapid delivery public sector construction projects

16 May 2008

Suretyship is one of the performance risk management measures used in modern construction contracts. Construction contracts, such as the FIDIC, JBCC Series 2000 and GCC 2004, offer pro forma deeds of suretyship and guarantee forms, but consultants sometimes use in-house contract documentation, which may lead to poor interpretation and application. Suretyship requirements are often the cause of time delays on Rapid Delivery Public Sector Construction Projects (RDPSCP), whether pro forma or in-house deeds or forms are used. Project start dates are generally set within weeks after the contract has been awarded, which time period may be inadequate for some contractors (more specifically emerging contractors) to provide a surety to the approval of the client. In the event of non-performance by the original contractor another contractor must be appointed to complete the works. This process results in loss of time attributable to time frames required for issuing contractual / statutory notices to the original contractor, and delay in appointing a second contractor. Most general conditions of contract have been designed from a commercial and legal perspective, which ignore the negative practical implications of construction suretyship on progress on site. Consultants, therefore, are compelled by necessity to draft special conditions to suit RDPSCP, otherwise delays and disputes are inevitable. It is recommended hereafter that, instead of sureties, guarantees be used as securities, which should be in the form of a 'demand guarantee'. No construction time will be lost in calling up this type of construction guarantee (Forsyth & Pretorius 2002: 26) as the guarantor unconditionally and irrevocably undertakes to pay the amount of guarantee on demand and without proof of any breach of contract by the contractor.