Contract performance bond combined with final installment

  • Erstellt am 2015-05-28 17:54:08

willWohnen

2015-05-28 17:54:08
  • #1
Hello dear forum members,

first of all, I kindly ask for a bit of understanding.
My life is really stressful at the moment and maybe it is because of this stress that I am particularly slow to understand such legal formulations right now.
I have already entered "contract performance bond" in various search engines on the internet and also here in the forum, but have not yet really understood any text in relation to my situation.
Maybe someone has time and desire to explain to me in a few sentences "for dummies" what that is.

For those who want to know the background, I have inserted a detailed paragraph here. Please don’t bash me because we had the contract changed at all, I already know that this has not exactly made things simpler. Of course, it also had solid financial benefits for us, we just had to weigh things up.
At the very bottom bold my specific questions.

On the background.
We had a usual general contractor contract with a payment schedule, in which a sufficiently high final installment (8%) was also provided. During the construction phase, we changed the contract for certain reasons. I will now present these changes in a simplified way to the essentials, i.e. above all, certain trades were "taken out" and partly brought forward (garages) and already paid earlier or paid directly to the originally planned subcontractors. Coordination and construction management still explicitly lies with the GC. In any case, the payment plan no longer matches 100% in detail and now we have approached our GC that we of course still want to withhold a certain final installment and want to coordinate specifically with him on this. Especially because the part without a final installment will already be reached (= paid) very soon.
Originally the installment was 8%, due to our own "fault" this is now no longer really possible or sensible, but we would now like to have 5%. That is what I know as a recommendation for building owners.
Since he also has to pay subcontractors and suppliers, we were a bit curious about his reaction. I don’t think it can really go badly for him IMHO, the company has been around for many years (without this info and good experiences of others we would not have chosen the company, of course) and they currently have almost more orders than they can handle, but from what I have heard, unfortunately that does not mean that he is very liquid. (More precisely: The cash flow from him to his subcontractors was apparently too slow.)
Now he has proposed to us not to handle the entire 5% as a final installment, but for a little over half of that he wants to instead provide us with a contract performance bond.
I quote his email: "I would offer to provide a contract performance bond with the next progress payment, so that the security at the last payment is at the desired ...€."
My husband and I could probably insist on the 5% final installment from the contract, but of course we want an amicable solution with the GC and no "war" – if the GC can no longer pay his suppliers or "saves" on our house, we have gained nothing either.

I do not understand who guarantees what there. We probably get the bond (i.e. a right to something), i.e. someone guarantees for him, an insurance or bank? But we would still have to pay the money to him at the time of the progress payment?
Actually, we want to withhold money so that he still has enough "motivation" in case of defects or outstanding items to complete it on time.
What I have read about contract performance bonds is that it is more about being secured in case of insolvency of the construction company.
So my essential questions are:
1.) At the time of the "bonded" invoicing/progress payment, from whom to whom does money flow?
2.) Would this contract performance bond in our hands be a leverage against the GC in case of defects or delays?
3.) Who is the guarantor and in which case does this guarantor pay money to whom?


A thousand thanks for your efforts.

willWohnen
 

toxicmolotof

2015-05-28 18:04:47
  • #2
3) Bank or insurance company, to you upon first demand, provided the guarantee also stipulates this. (Caution, the devil is in the details of the guarantee wording.)
 

willWohnen

2015-05-28 18:16:37
  • #3
Hello, thanks for your answer. So ideally, if the guarantee allows it, I could say at the end of the house construction, well here I see major defects, I'll get the value in money back from the guarantee and then the bank/insurance has to figure out how to get the money back from the construction company? If the defects have been fixed, I would have to pay back the money - uh, either to the bank... or the company...?
 

toxicmolotof

2015-05-28 18:50:45
  • #4
Yes, that's roughly how it goes, but it should always be the last resort. To the company. The guarantor initially has nothing to do with the claim and the defect rectification.
 

Bauexperte

2015-05-28 19:53:37
  • #5
Good evening,


Just asking for myself ...

... isn't it a bit late for a performance bond? What exactly are you aiming for with withholding the final payment, which is surely (contractually) tied to certain conditions?

Rhenish regards
 

willWohnen

2015-05-28 20:05:49
  • #6
Hello, so whether it is too late for the performance bond, I can only assess once I have understood it. Well, the final payment is only due after the final acceptance. And the final acceptance is only "given" when everything is okay. So in my mind, I walk through the whole house again with my construction expert and check whether everything that was agreed upon has been implemented and whether the implementation is okay. And if it is not okay, then you demand rectification or completion and withhold the final payment until then. (Or part of it? Depending on the extent of the defects?) If the final payment is too small, it could happen that the construction company says, well, on other sites I earn more or the rectification will cost me more than the amount of the final payment anyway, so the client can keep his remaining wishes where the sun doesn't shine. N'est-ce pas? Greetings
 

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