Bonds In Construction Projects And Dispute Resolution

Introduction

Risk management is a critical aspect of international construction projects. One of the key tools used to manage risk in this context is the provision of bonds. It is common industry practice for employers to require contractors to provide bonds as security for potential risks and various obligations. This practice is also reflected in standard form construction contracts, such as those issued by the International Federation of Consulting Engineers (FIDIC), the New Engineering Contract (NEC) and the Joint Contracts Tribunal (JCT), which include provisions addressing different scenarios in which bonds may be provided.

In general, bonds take the form of a third party’s written promise to pay a specified amount of money upon the occurrence of a defined event. Bonds are typically issued by banks or other financial institutions. This arrangement creates a tripartite relationship between the employer, the contractor and the issuer.¹ The relationship between the employer and