Investing in such projects can therefore carry substantial risk. Bonds are often required to ensure the completion of these projects and connection to the national grid with the range of bonds including bid, performance, advance payment and warranty/maintenance.
Bonds can be provided by banks or insurance companies (‘sureties’) but there are advantages to using the insurance market over banks. Significantly, using a bank will impinge on working capital facilities, whereas arranging a bond through the insurance market is ‘off balance sheet’ freeing up the bank facility to be used for other means.
We arrange and manage bond facilities through A-rated insurance companies, rather than banks, ensuring our clients’ working capital facilities and liquidity are not affected.
Performance Bonds during the Build Phase
When entering into a contract, the Employer or funders of the project will often require a performance bond from a financial institution to be put in place to protect them against contractual default, particularly as a result of insolvency. The bond is there to provide a sum of money, usually up to 10% of the contract amount, to pay for any damages suffered and to find another contractor to complete the project.
Bonds during the Warranty and Maintenance Phase
Once the build of the solar or wind farm is complete, the employers/funders will often require a bond to be in place for a period of time to ensure a successful connection to the grid and to ensure the facility is free from defects and providing the necessary energy output. These bonds are typically 5-10% of the contract amount.
Why use a broker?
Using the services of a specialist surety broker, such as Gallagher’s, has a number of benefits. Our expertise and experience in the regulated surety market, combined with our relationships with key underwriters and decision makers, makes sure that our clients have the necessary capacity and suitable terms available when tendering for contracts. We can also assist in effectively managing client’s capacity and provide assistance and advice on bond and indemnity wordings.
Get in touch to find out how we can help you.