Companies in the construction and engineering industries often need to provide their clients with performance bonds and other third-party guarantees to ensure contractual obligations are met.
The ability to provide such bonds and guarantees can be a critical differentiator when bidding for contracts, and failure to provide a bond can ultimately lead to disqualification from the bidding process.
Marsh’s Surety Practice provides a complete solution for sourcing surety bonds. From arranging bond facilities and ensuring adequate capacity, to providing advice on bond wordings and indemnity negotiation, we bring together the scale, scope, and intellectual capital of the organisation to deliver innovative and high-quality surety risk solutions, domestically and globally.
Marsh has developed long-standing relationships with the leading global surety providers, which enables us to source and develop surety solutions for you whilst aiming to deliver very competitive terms.
It is our aim to add real value to your business. We aim to save you time and money and help you to reduce risk.
Bonds can be provided by banks or insurance companies. However, banks will only provide unconditional on-demand bonds that are independent instruments and do not provide any protection of the underlying contract conditions. Using banks for the provision of bonds will also impact your working capital headroom.
The insurance market prefers to provide guarantee bonds that are conditional in nature and relate directly to the underlying contractual obligations. This type of instrument is ‘off balance sheet’ and will not impact or reduce your working capital facilities. An insurer will usually take security by way of a counter indemnity from the company (or group) and will not charge an arrangement or non-utilisation fee. A bond premium is paid solely on the individual bond requirement.
Not all bond providers are the same and each can have a different opinion when it comes to analysing credit risk, pricing bonds, or reviewing bond wordings. Marsh has access to the entire regulated surety market and can ensure that the most appropriate surety companies are approached for your bond or bonds.
Our team of surety experts provide a range of services, from arranging bond capacity, to providing advice on bond and indemnity wordings.
Energy from Waste Contract Bonds
As contractors and engineers who are involved in the energy from waste industry, you will often have to provide performance and advance payment bonds to your employers. Whether you provide the process technology, carry out the civil engineering works, or deliver the waste management contract, we can help with your surety requirements.
Marsh’s Surety Practice has the experience, expertise, and insurance market relationships to provide you with bespoke surety solutions with strong and reputable surety companies and aims to deliver competitive terms.
We have experience of arranging bonds for private finance initiative (PFI) contracts and can help you whether you are working as a sole contractor or in a joint venture arrangement, where contract and indemnity structures can be complex.
We also have considerable experience in providing advice on bond wordings, from standard conditional wordings to more complex and onerous obligations. We support you in negotiating the wording at an early tender stage, to ensure we obtain the best available terms and help retain the protection of the contract conditions.
Bonds for Housebuilders
Housebuilders will often need to provide section bonds and other third-party guarantees to ensure contractual agreements and obligations are met. In some cases, surety bonds can also be used to defer payment on land purchases, providing significant cashflow advantages.
The ability to provide such bonds and guarantees can be a critical differentiator when negotiating with landowner/developers. Marsh’s Surety Practice has the experience, expertise, and insurance market relationships to ensure you have sufficient bonding capacity, at competitive terms.
Letter of Replacement Surety
Historically, there was little appetite from surety underwriters to provide a guarantee replacing letters of credit and an unwillingness by insurers to accept/consider an alternative to a Letter of Credit (LoC).
Marsh’s Surety Practice has worked closely with the surety market to develop an appetite for this product and create suitable wordings. Many of the sureties are now comfortable in issuing a full on-demand guarantee, which provides the beneficiary of the guarantee a like-for-like payment mechanism to a letter of credit.
We are finding that more insurers are now happy to accept a surety guarantee as a LoC replacement. One major factor that has influenced this is the downgrading of several banks, some of which now fall under the minimum credit rating criteria requirements set by the carriers. In contrast, most of the sureties have a Standard and Poors’ rating of at least AA-.
Advantages of Replacing LoCs with a Surety Bond
- Free up banking lines: the stark contrast with a surety bond is that the capacity provided by the sureties does not impact on a group’s banking facility, thus freeing up working capital for core business activities.
- Obtain more competitive pricing for bonds: the cost of capital for sureties is different to that of banks and often allows the surety market to offer very competitive pricing, where appropriate.
- Access additional capacity: additional capacity is often available for clients to utilise for other guarantee requirements they may have; there would be no cost implications of having the additional capacity available. Costs are based purely on utilisation.