Glossary

What is a Surety Bond?

A Surety Bond provides the back up guarantee for a Contract between two Commercial Parties

What is an Assignment of Contract Debt?

The Assignment of Contract Debt involves the client signing a document in which the client assigns, to the Surety, its entitlement to the remaining sums payable under the contract. This can only occur once there has been a breach of Contract and / or a call under the Bond.

Build Up Fund

The Build Up Fund (BUF) is a means by which the Client Company can provide cash collateral security to the Surety. As opposed to a Lump Sum cash collateral security, which involves placing the collateral with Surety at the beginning of the Contract Period in one single payment, the BUF allows the Client Company to spread the Surety’s cash collateral security requirement over the whole of the Contract Period or, for example, over a pre-defined number of months. This means that the Client Company can make smaller, regular and more manageable payments which are funded, in effect, by the ongoing Contract. The BUF was created to remove the requirement for “up front” collateral sums at the beginning of a Contract as it is precisely at that point that Contractors need their liquidity most.

What is a Deed of Counter Indemnity?

It is the general (umbrella) obligation to repay. It is a guarantee from the Client Company / partnership / sole trader that they are liable to the Surety for any and all monies for which the Surety becomes liable under the terms of the bond issued on behalf of the client.

What is a Floating Charge?

A Floating charge, unlike a charge, does not attach to any particular asset. It floats over a class of assets, during which time the component parts of the class of assets may be constantly changing, as the company has the power to deal with any of the assets within that class without needing to consult the holder of the floating charge. For example, a floating charge may be taken over the company’s stock or future assets of the company. This does not prevent the company from selling its current stock, but any new stock it buys in to replace that which is sold immediately becomes the subject of the floating charge as it falls into the class of assets which are covered by the charge. Therefore the floating charge is secured on any property within the specified class (e.g. any stock) which happens to be owned by the company on a particular day. It is common for institutional lenders to take a floating charge over any of the company’s having already taken a fixed charge over any of the company’s assets which is possible to make the subject of a fixed charge). Inevitably the value of the security will vary from day to day as the company carries on business, but if the floating charge crystallises the value of the security is then fixed.

On Demand Bonds

An ‘on demand’ bond is an independent obligation requiring the Surety to pay up to the full amount stated in the bond ‘on demand’ by the employer. A bond of this type will generally be in short form and expressed to become payable ‘on demand’ or ‘on your first demand’. Payment must normally be made notwithstanding protests by the Contractor and without any requirement on the part of the Employer to establish a breach of contract or that any damages have in fact been suffered.

• The contractor has no defence against a call on such a bond other than proven fraud and there can be no effective challenge to the employer’s demand.

• Such bonds have been used as a ‘lever’ by employers when a contractual dispute has arisen entitling the contractor to additional payments. Though an improper call on the bond in these (and any other) circumstances might well jeopardise the solvency of the contractor, the contractor cannot take any action to prevent payment. Even an employer owing substantial sums to the contractor can make demand for immediate payment.

(Sourced from ABI)

Section Agreements

Section 38 – Highways Act 1980, Adoption of New Highways

This is a standard Agreement used by County Council for new estate road developments.

Developers have to bring newly constructed road, paths and pavements up to the adoptable standard set by the Highways Authority. Developers therefore enter into this Agreement to ensure that the adoptable standard is met and that the County Council, as the Highway Authority, thereafter adopts the roads for future public maintenance. These Agreements are required to be supported by a Bond for the protection of the Council and the residents of the estates.

Developers should ensure that when entering such Agreements they have complete undisputed title to the land on which the estate roads are to be built.

(Sourced from Local County Council)

Section 106 – Pre-planning Agreement

Section 106 (S106) of the Town and Country Planning Act 1990 allows a local planning authority (LPA) to enter into a legally-binding agreement or planning obligation with a landowner in association with the granting of planning permission. The obligation is termed a Section 106 Agreement.

These agreements are a way of delivering or addressing matters that are necessary to make a development acceptable in planning terms. They are increasingly used to support the provision of services and infrastructure, such as highways, recreational facilities, education, health and affordable housing.

(Sourced from Idea.gov.uk)

Section 278 – Highways Act 1980, Works Within The Highway

Where a development requires works to be carried out on the existing adopted highway, an Agreement will need to be completed between the developer and the County Council under Section 278 of the Highways Act 1980. Examples of such works could be the construction of new access/junction improvement of the highway/junctions, or safety related works such as traffic calming or improved facilities for pedestrians and cyclists.

(Sourced from Local Authority)

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