Contributed By Hawkins Hatton Corporate Lawyers Ltd
A performance bond is used in relation to construction projects as a means of insuring a client against the risk of a contractor defaulting on the contract obligations. A performance bond is provided by a third party up to an agreed amount.
A parent company guarantee (PCG) is also a form of security that can protect in the event of default on a contract by a contractor that is controlled by a parent company (or holding company). These are particularly helpful when a small contactor is retained who is part of a more financially viable parent company.
Escrow accounts are also used as holding accounts for construction project funds. They are usually set up by a solicitor acting on behalf of one of the parties. The terms of the agreement will specify that the payments must be protected, so as to provide security if payment is defaulted upon.