Security Flashcards
Explain the requirement for security as defined in the ABIC contract?
Security is cash that is put aside as an assurance that the contractor will meet its obligations under the building contract.
Who provides security under the ABIC contract and to whom?
The Contractor provides security to the owner.
What are the types of security available under ABIC?
Cash retention or Bank Guarantee.
What is a bank guarantee and what is its purpose under the terms of the ABIC contract.
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.
What is a retention fund under ABIC? What is its purpose and how does money get placed in this fund.
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.
How can an owner use a bank guarantee provided under the terms of the ABIC contract?
If the contractor fails to perform its obligations under the contract, the owner can request and use the bank guarantee monies to pay for another contractor/tradesperson to complete the works (i.e. during DLP - defects liability period). The owner must provide the security provider with a written demand for payment stating the amount of its entitlement.
How can an owner use the money in the retention fund under the terms of the ABIC contract?
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.
When, if at all, is security released and by which party to the ABIC contract?
Security is released at Practical Completion (2.5%) and again at Final Certificate (2.5%). The owner releases the security to the contractor.
Does the architect release security under the terms of the ABIC contract and if so to whom?
The architect does not release the security. The architect provides approval for retention funds or bank guarantees to be released.
