Understanding and obtaining Performance Bond or Warranty Bond in Ireland.

Under the RIAI (Royal Institute of the Architects of Ireland) standard forms of building contract in Ireland, Performance Bonds and Warranty Bonds are often required for certain projects, especially those of significant value or involving public or institutional clients. Here’s a breakdown of the types and context in which they apply:

🔐 Types of Bonds under RIAI Contracts

1. Performance Bond

• Purpose: To provide financial security to the employer (client) in case the contractor fails to fulfil their contractual obligations.

• Typical Form: A Performance Bond is usually executed by a third-party surety (e.g. a bank or insurance company).

• Amount: Commonly 10% of the contract sum (but this can vary).

• Duration: Typically valid until Practical Completion or a specified period thereafter.

• Relevant RIAI Clause: Not automatically included in RIAI contracts—must be added as a supplemental condition or required in the Schedule or Preliminaries.

2. Advance Payment Bond (less common)

• Purpose: Used when the contractor receives an advance payment. This bond guarantees repayment if the contractor defaults.

• Usually seen in: Public works or contracts with advance mobilisation costs.

• Not standard in RIAI contracts but may be incorporated if advance payments are involved.

3. Retention Bond

• Purpose: To replace cash retention; allows the contractor to receive full payments during the project while still providing security to the client.

• Issued by: Bank or surety.

• Commonly introduced when clients prefer not to hold retention monies.

🧾 Collateral Warranties (Not Bonds but Related)

While not a "bond" per se, collateral warranties are commonly required alongside RIAI contracts from:

• Contractors

• Subcontractors

• Designers They are used to give third parties (like funders, tenants, or purchasers) a direct contractual relationship with the parties carrying out the work or design.

🏛️ RIAI Forms & Public Works

In public sector projects, RIAI contracts may be replaced by Public Works Contracts (PWC), where performance bonds are mandatory and more rigidly defined (usually in standard DoE templates).

📌 Summary Table

Bond Type	Typical Use	Required?	Notes
Performance Bond	Security against contractor default	Often, by agreement	Usually 10% of contract sum
Advance Payment Bond	Protects client’s advance payment	Rare in RIAI contracts	May be included if mobilisation advance is paid
Retention Bond	Replaces cash retention	Optional, by agreement	Useful for contractor cash flow
Collateral Warranty	Provides rights to third parties	Yes, in many cases	Not a bond, but related to project risk allocation

In Ireland, a contractor typically obtains a Performance Bond or Warranty Bond through a surety provider—usually a bank, an insurance company, or a specialist bonding company. Here’s a friendly, professional breakdown of how the process works and what’s usually involved:

🛠️ Steps to Obtain a Warranty Bond / Performance Bond

1. Check the Contract Requirements

• Review the RIAI or PWC contract to confirm if a Performance Bond is required.

• Check the percentage of the bond (commonly 10% of the contract sum) and validity period (often up to Practical Completion or beyond).

2. Engage a Bonding Provider

Contractors can approach:

• Their main bank (e.g. AIB, BOI, Permanent TSB)

• An insurance broker (e.g. Willis Towers Watson, Arachas, or Lockton)

• A specialist surety provider (e.g. Surety Bonds Ireland, Surety Solutions)

It’s often helpful to work through a broker who understands construction and can shop the market.

3. Prepare Required Documentation

Expect to be asked for:

• Recent financial statements (2–3 years)

• Company accounts, cash flow, and turnover

• Details of the contract/project

• Record of past project performance

• List of ongoing obligations

• Personal guarantees (for SMEs or new contractors)

4. Underwriting & Approval

• The surety provider assesses the financial health, track record, and capacity of the contractor.

• This is like a credit check—more established contractors with clean financials get quicker approvals and better rates.

5. Bond Issuance

• Once approved, the surety will issue the bond document, naming:

  • The beneficiary (usually the employer or client)

  • The principal (the contractor)

  • The surety (the bonding company)

  • The bond amount and expiry date

• The original bond is usually handed to the Employer’s Representative or Architect under the contract.

💶 What Does It Cost?

• Typical Premium: Between 0.5% and 2% of the bond value (depending on risk, credit history, and project size).

• Example: A €200,000 bond might cost €1,000–€4,000 for the year.

📜 Common Bond Types Issued in Ireland

Bond Type	Issued By	Typical Value	Used When
Performance Bond	Bank / Surety Company	10% of contract sum	Contractor must guarantee delivery of contract
Retention Bond	Insurance or Bank	Replaces 5% retention	Contractor wants cash flow during project
Advance Payment Bond	Surety or Bank	Matches advance	Contractor receives upfront payment
Collateral Warranty	Direct from contractor/designer	N/A	Client or funder needs third-party rights

✅ Tips for Contractors in Ireland

• Build a track record of bonded projects to make future bonds easier and cheaper.

• Keep financials clean and current—bonding underwriters value transparency and liquidity.

• Work with a construction-experienced broker who can advocate for you.