Bond insurance problems pose new work threat

Struggling contractors are about to hit a fresh obstacle trying to win work during the downturn, according to an accounting expert.
Richard Kelly, partner at accountancy firm BDO Stoy Hayward, has told Construction News that bond insurance problems could prove the next big stumbling block for contractors.

Clients often wish to secure performance bonds to insure themselves against breaches of contract by firms working for them â€" as often happens when contractors go bust.

But the economic downturn could see performance bond providers refusing to insure clients against increasing numbers of contractors.

Mr Kelly said: "Prior to issuing a bond, the provider will undertake an assessment that the bonded contractor has the ability and credit worthiness to perform the contract. In the current market, that is likely to be an extremely rigorous assessment and there is certainly no guarantee that the bond will be provided."

This could see contractors struggle to win work from certain clients â€" particularly in the public sector â€" mirroring problems in the credit insurance market.

Mr Kelly added: "The absence of bonds could seriously inhibit the ability of some contractors to win work and therefore survive the downturn, thereby potentially making this as important as the absence of credit insurance."

Credit insurance policies cover businesses against the risk of bad debt due to the insolvency or default of their customers.