Performance bond : conditional or unconditional

In construction contracts, a 'performance bond' is a bond taken out by the contractor, usually with a bank or insurance company (in return for payment of a premium), for the benefit of and at the request of the employer, in a stipulated maximum sum of liability and enforceable by the emplo...

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Main Author:	Supardi, Azizan
Format:	Thesis
Language:	English
Published:	2007
Subjects:	HD28 Management Industrial Management
Online Access:	http://eprints.utm.my/id/eprint/11575/1/AzizanSupardiMFAB2007.pdf
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id	my-utm-ep.11575
record_format	uketd_dc
institution	Universiti Teknologi Malaysia
collection	UTM Institutional Repository
language	English
topic	HD28 Management Industrial Management
spellingShingle	HD28 Management Industrial Management Supardi, Azizan Performance bond : conditional or unconditional
description	In construction contracts, a 'performance bond' is a bond taken out by the contractor, usually with a bank or insurance company (in return for payment of a premium), for the benefit of and at the request of the employer, in a stipulated maximum sum of liability and enforceable by the employer in the event of the contractor's default, repudiation or insolvency, as stated by Nigel M Robinson et. al. in his book, Construction Law in Singapore and Malaysia. He further added that there are two types of performance bonds: Conditional bond or default bond, whereby the surety accepts 'joint and several' responsibility for the performance of the contractor's obligations under the contract; and Unconditional bond or on-demand bond, which is a covenant by the surety (usually a bank) to indemnify the employer following contractor's default, subject to stated terms and up to a sum commonly 5% of the main contract sum. However, in Malaysia, for the past 20 years and since the famous case of Teknik Cekap Sdn Bhd v Public Bank Berhad [1995] 3 MLJ 449 to the recent Suharta Development Sdn Bhd v United Overseas Bank (M) Bhd & Anor [2005] 2 MLJ 762, the question of whether the performance bond in a construction contract is a conditional or an unconditional guarantees is still one of the issues relating to performance bond that has been discussed. Thus, in order to determine the types of performance bond applicable in a contract, a thorough understanding of the content of the bond is required. Therefore, the objective of this research is to determine the phrase(s) in the Performance Bond in a construction contract that determine whether the performance bond is a conditional or unconditional on demand guarantee. In order to achieve this objective, the research was conducted by analyzing relevant court cases. From the findings, it can be concluded that unless an undisputed meaning of the words in the performance bond to make the performance bond to be purely conditional or unconditional 'on-demand' bond, most court interpreted performance bond to be an on-demand performance bond which is only conditional upon the beneficiary asserting the basis of the claim upon the issuer of the bond contending that there has been breach of contract.
format	Thesis
qualification_level	Master's degree
author	Supardi, Azizan
author_facet	Supardi, Azizan
author_sort	Supardi, Azizan
title	Performance bond : conditional or unconditional
title_short	Performance bond : conditional or unconditional
title_full	Performance bond : conditional or unconditional
title_fullStr	Performance bond : conditional or unconditional
title_full_unstemmed	Performance bond : conditional or unconditional
title_sort	performance bond : conditional or unconditional
granting_institution	Universiti Teknologi Malaysia, Faculty of Built Environment
granting_department	Faculty of Built Environment
publishDate	2007
url	http://eprints.utm.my/id/eprint/11575/1/AzizanSupardiMFAB2007.pdf
_version_	1747814871895900160
spelling	my-utm-ep.115752018-08-26T04:53:04Z Performance bond : conditional or unconditional 2007-10 Supardi, Azizan HD28 Management. Industrial Management In construction contracts, a 'performance bond' is a bond taken out by the contractor, usually with a bank or insurance company (in return for payment of a premium), for the benefit of and at the request of the employer, in a stipulated maximum sum of liability and enforceable by the employer in the event of the contractor's default, repudiation or insolvency, as stated by Nigel M Robinson et. al. in his book, Construction Law in Singapore and Malaysia. He further added that there are two types of performance bonds: Conditional bond or default bond, whereby the surety accepts 'joint and several' responsibility for the performance of the contractor's obligations under the contract; and Unconditional bond or on-demand bond, which is a covenant by the surety (usually a bank) to indemnify the employer following contractor's default, subject to stated terms and up to a sum commonly 5% of the main contract sum. However, in Malaysia, for the past 20 years and since the famous case of Teknik Cekap Sdn Bhd v Public Bank Berhad [1995] 3 MLJ 449 to the recent Suharta Development Sdn Bhd v United Overseas Bank (M) Bhd & Anor [2005] 2 MLJ 762, the question of whether the performance bond in a construction contract is a conditional or an unconditional guarantees is still one of the issues relating to performance bond that has been discussed. Thus, in order to determine the types of performance bond applicable in a contract, a thorough understanding of the content of the bond is required. Therefore, the objective of this research is to determine the phrase(s) in the Performance Bond in a construction contract that determine whether the performance bond is a conditional or unconditional on demand guarantee. In order to achieve this objective, the research was conducted by analyzing relevant court cases. From the findings, it can be concluded that unless an undisputed meaning of the words in the performance bond to make the performance bond to be purely conditional or unconditional 'on-demand' bond, most court interpreted performance bond to be an on-demand performance bond which is only conditional upon the beneficiary asserting the basis of the claim upon the issuer of the bond contending that there has been breach of contract. 2007-10 Thesis http://eprints.utm.my/id/eprint/11575/ http://eprints.utm.my/id/eprint/11575/1/AzizanSupardiMFAB2007.pdf application/pdf en public masters Universiti Teknologi Malaysia, Faculty of Built Environment Faculty of Built Environment I. N. Duncan Wallace Q. C. (1995), Hudson’s Building and Engineering Contracts, 11th Edition, Volume 1, Sweet & Maxwell, London. I. N. Duncan Wallace Q. C. (1995), Hudson’s Building and Engineering Contracts, 11th Edition, Volume 2, Sweet & Maxwell, London. I. N. Duncan Wallace Q. C. (2004), Hudson’s Building and Engineering Contracts, 11th Edition, 1st Supplement, Sweet & Maxwell, London. Ir Harbans Singh KS (2002), Engineering and Construction Contracts Management – Law and Principles, LexisNexis, Kuala Lumpur. Ir Harbans Singh KS (2002), Engineering and Construction Contracts Management – Pre-Contract Award Practice, LexisNexis, Kuala Lumpur. Ir Harbans Singh KS (2002), Engineering and Construction Contracts Management – Commencement and Administration, LexisNexis, Kuala Lumpur. Ir Harbans Singh KS (2003), Engineering and Construction Contracts Management – Post-Commencement Practice, LexisNexis, Kuala Lumpur. John Uff (2002), Construction Law, 8th Edition, Sweet & Maxwell, London. Malaysian Treasury (1997), ArahanPerbendaharaan, Instruction No 200.2, Kuala Lumpur. Malaysian Treasury (1999), Surat Pekeliling Perbendaharaan Bil. 2/1995 and Tambahan Kedua Surat Pekeliling Perbendaharaan Bil. 2/1995, http://www2.treasury.gov.my, August 1999. P. A. M. 1998 Agreement and Conditions of Building Contract Private Edition with Quantities. Rajendra Navaratnam (2004), Recent Legal Developments In The Construction Industry In Malaysia, Seminar, International Construction Conference 2004 (In Conjunction With MALBEX & ICW 2004), CIOB Malaysia & MBAM. Sinha & Dheeraj, Legal Dictionary, International Law Books Services, Kuala Lumpur. Stephen Furst and Vivian Ramsey (2001), Keating on Building Contracts, 7th Edition, Sweet & Maxwell, London. Sundra Rajoo (1999), The Malaysian Standard Form of Building Contract (The PAM 1998 Form), Second Edition, Malayan Law Journal, Kuala Lumpur. Tracey Summerell (1998), Who is Entitled to the Retention Fund?, Articles and Journals, Masons, http://www.masons.com/library/articles/c&emonth/retentio.hts, June 1998.

Performance bond : conditional or unconditional

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