1. The Department of Public Expenditure and Reform has today issued a circular reducing the level of construction performance bonds required on public works contracts. The construction sector has seen extremely high levels of insolvency in recent years which is reflected in the appetite of specialist insurance providers to provide cover at the levels previously sought. The tightening in the market is leading to tendering delays where it is proving increasingly difficult to award contracts should the performance bond level required in the tender exceed 12.5%.
The circular sets out new levels for performance bonds for projects and will take immediate effect.
In the context of the public capital programme this is the first of a number of steps that are being taken to reduce the risk posed by insolvency of a main contractor on a public works contract. In the event of insolvency there is a financial loss sustained both in the additional costs involved in retendering but also due to the delay in providing the project in question. Details of these further steps will be communicated shortly.
2. This Circular can be accessed through the link to Circulars on the navigation menu.
3. The following documents have been updated to reflect changes required in Circular 07/13:
a. Changes have been made to Schedule ‘Part 1 E – Performance Bond’ of the following (i) Forms of Tender and Schedules and (ii) Schedules for Public Works Contracts:
• FTS-1 (v1.5 01/06/2012) and PW-CF1 Schedule (28/07/2011);
• FTS-2 (v1.5 01/06/2012) and PW-CF2 Schedule (28/07/2011);
• FTS-3 (v1.6 01/06/2012) and PW-CF3 Schedule (07/10/2011);
• FTS-4 (v1.6 01/06/2012) and PW-CF4 Schedule (07/10/2011);
• FTS-5 (v1.5 01/06/2012) and PW-CF5 Schedule (08/08/2011); and
• FTS-7 (v1.2 01/06/2012) and PW-CF7 Schedule (03/10/2011)
b. GN 2.3.1.3 – Section 1.3 ‘Main Criteria (Economic and Financial Standing), Criterion 10 Performance Bond’.
c. GN 1.5 – Section 2.3.3 ‘Performance Bonds’
4. In addition to 3 c. above the following changes have also been made to GN 1.5 Public Works Contracts;
a. Pricing Documents – the inclusion of guidance on the use of a Bill of Quantity for use in conjunction with the Short Public Works Contract (PW-CF6).
b. A Supplement 2 to the Agreed Rules of Measurement version 4 (ARM 4) has been issued by the Society of Chartered Surveyors and is effective from 1 May 2013. Supplement 2 provides those preparing Bills of Quantities with the option to use a less onerous set of measurement rules than those included in ARM4 when measuring the mechanical and electrical elements of the Work Requirements. Supplement 2 defines which of the ARM4 Rules it replaces. An Introductory Note to Supplement is available at Appendix D4 of GN 1.5. See also separate News Item.