SECURITY

Question 1

1. Explain the requirement for security as defined in the ABIC contract.

Answer 1

Security is cash that is put aside as an assurance that the contractor will meet its obligations under the building contract.

Question 2

2. Who provides security and to whom?

Answer 2

The Contractor provides security to the owner.

Question 3

3. What are the types of security available under ABIC?

Answer 3

Cash retention and Bank Guarantee.

Question 4

4. What is a bank guarantee and what is its purpose under the terms of the ABIC contract?

Answer 4

A bank guarantee is a percentage of the contract price (usually 5%) which is held in an account of recognised financial institution approved by the owner, and is held under the owner and contractor’s names. The contractor gives the owner 2 equal bank guarantees (2.5% each) 10 days following the signing of the contract. Only the owner can access the funds with written consent from the contract administrator/architect.

Question 5

5. What is a retention fund? What is its purpose and how does money get placed in this fund?

Answer 5

A retention fund is another form of security held by the owner as a form of guarantee to ensure the contractor performs its obligations under the contract. Retention is accumulated by withholding 10% of each progress payment until the amount agreed has been reached (ABIC Item 8, Schedule 1 – usually 5% of the contract price). Typically, at PC 2.5% of the retention is released to the contractor, with the remaining 2.5% released at FC.

Question 6

6. How can an owner use a bank guarantee provided under the terms of the ABIC contract?

Answer 6

As below. The owner must provide the security provider with a written demand for payment stating the amount of its entitlement.

Question 7

7. How can an owner use the money in the retention fund under the terms of the ABIC contract?

Answer 7

If the contractor fails to perform its obligations under the contract, the owner can use the retention monies to pay for another contractor/tradesperson to complete the works (i.e. during DLP). The architect must first provide written approval.

Question 8

8. When, if at all, is security released and by which party to the ABIC contract?

Answer 8

Security is released at Practical Completion (2.5%) and again at Final Certificate (2.5%). The owner releases the security to the contractor.