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Many Local authorities require building licence applicants to lodge a cash security bond in case of damage to footpaths or other requirements during the construction process.  Some councils also require a “performance” bond as some kind of assurance that all building codes and regulations will be complied with, or that landscaping will be completed. The value of these bonds can be thousands of dollars. The deposits are usually refundable upon successful completion of the job.

Builders deal with these bonds in a variety of ways. Some builders simply absorb the cost of the bonds and deposits by paying them and obtaining a refund, less any deductions, from the shire at the end of the job. Others require a client to lodge the bond directly with the local authority. This is a very clean way to handle the matter. If there is any damage to footpaths, for example, the amount would be deducted from the bond by the shire before returning the balance to the client.  Another simple way this can be handled is that the builder includes an amount for kerb and footpath protection in his price, and takes the risk that his estimate is accurate.

In some contracts the builder includes the bonds in the contract sum, since the total amount is easily calculated by contacting the local shire. If there is any variation to the bond amount then the builder can, if allowed to treat as a variation, deducts this amount before returning the bond to the client at the end of the job. There may be an administrative fee plus margin charged by the builder under this method.

Another practice is to include deposits and bonds as a provisional sum or special allowance.  A builder may consider that the precise amount and cost of footpath damage is unknown and prefers to include this item as a provisional sum. When the actual cost is known, a variation can be raised with an allowance for administration and profit.

Whatever method is used it should be clearly stated in the contract and or clearly understood by all parties before contract signing. Builders and their clients also need to remember to collect their deposits at the end of the job. Each year thousands of dollars in uncollected deposits sit in local government coffers awaiting collection.

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