The use of subdivision bonds in construction projects has become widespread throughout most of Australia, and are a key part in the awarding of contracts to companies who undertake infrastructure work on behalf of local councils and local government. A subdivision contractor is any company who is involved in doing any of the work and who has agreed to lodge such a bond with local authorities.
A subdivision bond is essentially a type of insurance policy that the contractors will agree to, that protects the council or local authority in the event that the construction or engineering company either fail to complete the work in time, or to make sure that the infrastructure project is delivered to the agreed standards in all its areas. It is also meant to protect existing council assets against damage during the infrastructure work.
Infrastructure projects are notorious in that they often exceed budget and often run over time, sometimes by several years. A subdivision contractor, by providing a bond, gives some measure of guarantee to a local authority regarding costs and performance. The bond a contractor provides can either be a cash bond or a bank guarantee.
There are essentially five types of bond that encompass subdivision construction and engineering works, that can relate to most major infrastructure projects. Different states and local authorities will have their own Bond Development Works Policies
Incomplete works bond
This type of bond relates to construction work that is either incomplete or has been done but does not meet the standards set down by the council in the original contract. It may also cover areas where work is delayed because the developer needs to obtain certain registrations in relation to work that needs to be done, prior to such work being undertaken.
Defects and liability bond
This bond provides cover for what are known as any defects or liabilities that may occur as a direct result of the work being undertaken in relation to the infrastructure project. This normally covers areas such as public roads, drainage or sewage systems, footpaths, street lighting etc. All major construction jobs involve several different elements of building and engineering work, any one of which can easily go wrong and have a knock-on effect on other parts of the project.
A damages bond is designed to protect the council or local authority in the event that the contractor causes damage to public utilities during the undertaking of their construction work. This can relate to similar areas as the defects and liability bond, most notably common footpaths, drainage and sewage systems, road pavements, guttering, street lighting etc.
This is in many ways a much more wide-reaching bond that allows a local council to complete infrastructure work that it deems as not been carried out satisfactorily, either in terms of public safety or where they consider the work has not been done to the necessary standard or specifications that were agreed upon at the outset.
Rolling developer bond
A local authority or council has the option to accept this type of bond where the subdivision contractor or developer is undertaking a particularly large development, often involving several different projects that are ongoing at the same time, and where there are essentially a number of different stages taking place in the construction process.
The subdivision contractor is allowed to transfer bonds from one stage to another, as the needs of the work cycle dictate. This is meant to streamline the whole bond process in big projects, which could otherwise become bogged down in massive amounts of red tape and paperwork.