Bonds, guarantees, warranties and third-party rights

Investors can be wary of funding construction projects due to exposure to different types of risk. Bonds, guarantees and warranties offer some security from risks such as breach of contract and insolvency.

In cases of breach of contract, where the contractor has failed to comply with its obligations to complete the works in accordance with the building contract, performance bonds offer a secure fund from which an employer can draw. In the same way a parent company guarantee can lower the risk to an investor in the event of insolvency.

The Contract (Rights of Third Parties) Act 1999 provides further security to investors and can also be used as an alternative to collateral warranties by subcontractors. It enables third-party beneficiaries, such as investors and subcontractors, to enforce terms of a contract to which they themselves are not a party.

This section is maintained by Matt Ford of Pinsent Masons.