Q&As

If you require a conditional bond from a contractor, are there privity of contract issues if the bond is entered into by the contractor's parent company rather than the contractor itself? Should the contractor be a party to the bond as well as its parent company? Is there any wording for a recital to cover this situation?

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Published on LexisPSL on 10/09/2018

The following Construction Q&A provides comprehensive and up to date legal information covering:

  • If you require a conditional bond from a contractor, are there privity of contract issues if the bond is entered into by the contractor's parent company rather than the contractor itself? Should the contractor be a party to the bond as well as its parent company? Is there any wording for a recital to cover this situation?

If you require a conditional bond from a contractor, are there privity of contract issues if the bond is entered into by the contractor's parent company rather than the contractor itself? Should the contractor be a party to the bond as well as its parent company? Is there any wording for a recital to cover this situation?

It is not clear from the question why it is proposed that the contractor’s parent company should enter into the bond instead of, or as well as, the contractor. Whether this is an advisable course of action may depend on the particular circumstances, the demands of the guarantor/employer and financial stability of the contractor etc. However, in our experience, it is certainly not common. We envisage that the reason it is being considered may be because the parent company is going to pay for the bond, rather than the contractor. If this is the case, it does not seem essential for the parent company to be party to the bond in order to pay for it (just as, where it is paying, the contractor does not actually need to be party to it unless it is

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