NEC X13 requires the Contractor to give the Client a performance bond, from a bank or insurer the Project Manager has agreed to. The Contract Data gives the amount and the Scope gives the form. It gives the Client financial protection from a third party if the Contractor fails to perform.
The Option has one clause, X13.1, in NEC3 and NEC4. The rule is the same in both editions, except that NEC3 calls the form's location the Works Information. It's one of the two main security Options among the NEC secondary Options, the other being the guarantee in Option X4.
What X13.1 requires, step by step
- The Contract Data states the bond amount, and the Scope contains the form.
- The Contractor proposes a bank or insurer for acceptance by the Project Manager.
- The Project Manager accepts or gives a reason. The contract's reason for not accepting is that the provider's commercial position isn't strong enough to carry the bond.
- The Contractor gives the bond to the Client by the Contract Date or, if not, within four weeks of the Contract Date.
Normal rules on replies apply. A refusal on a ground the contract doesn't give could be a compensation event under 60.1(9), so a Project Manager with a concern about the provider should tie the reply to its commercial strength.
Bond or guarantee?
| X13 performance bond | X4 holding company guarantee | |
|---|---|---|
| Given by | A bank or insurer | The Contractor's ultimate holding company |
| Amount | Stated in the Contract Data | Depends on the form |
| Cost to Contractor | A premium, plus any effect on its bonding capacity | Mainly internal approval |
| Provider acceptance | Yes, by the Project Manager | Only if an alternative is proposed |
| Useful if the whole group fails? | Yes, subject to its terms | No, because the guarantor falls with it |
A Client can require both, but each carries a cost that tends to come back through the tender price. Consider the Contractor's financial standing and the cost of completing the works if it failed. Use the secondary Options decision guide to weigh this.
What decides how much the bond is worth
NEC doesn't provide the bond form in the Option, so its wording comes from the Client. This wording makes a major difference:
- On-demand or default bond. An on-demand bond pays on a compliant request, while a default bond usually needs proof of breach and loss. Ask a lawyer to check which you have.
- Expiry. Does the bond end at Completion, at the Defects Certificate or on a stated date? A date that passes while the job is late could leave the Client unprotected.
- Changes. Does the bond continue if the Completion Date or Prices change? It needs to survive compensation events.
- Amount reduction. Does it step down over time, and on what trigger?
A short example
This is a fictional, illustrative example. A £12m Option C contract states a bond of £1.2m. The Contractor proposes a specialist surety. The Project Manager asks the Client's finance team to review the surety's latest published accounts. It declines the provider, saying only that the Client "prefers to use a bank". That's not the contract's reason, so the reply is open to challenge. A second reply gives the correct reason, based on a concern over the surety's financial strength, which gives the Contractor something to answer. The Contractor switches to a bank. Because the Contract Date has gone by, it has to deliver the bond within the four weeks.
Common mistakes
- Selecting X13 but leaving the amount blank. The Option has nothing to apply to without one.
- Waiting for award to approach a surety. Lead times can be longer than four weeks.
- Skipping the subcontract view. A bond a Subcontractor gives runs in favour of the main Contractor. A Client wanting protection against a key specialist will need a different arrangement.
- Thinking the bond covers everything. Its form decides what's covered, so don't assume it extends to Defects or delay damages unless it says so.
Related guides
- NEC Secondary Options: X, Y, W and Z Clauses Explained
- X14: Advanced Payment to the Contractor
- X15: The Contractor's Design
- X16: Retention
- X11: Termination by the Client
- X12: Multiparty Collaboration
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This guide is general information in our own words, not legal advice. Your contract and its Contract Data always govern. NEC, NEC3 and NEC4 are trade marks of Thomas Telford Ltd; Contract Status is not affiliated with or endorsed by NEC.