Jun 13, 2010 News
…spokesperson explains procedure
A director of Hand in Hand Group of Companies has said that the mobilisation bond covers the mobilisation stage which generally precedes the contract work which heralds the performance bond. The performance bond kicks in when the construction begins.
The official was speaking to the bonds that were issued to back Makeshwar Fip Motilall/Synergy Holdings Inc. as it relates to the construction of the roads in the Amaila Falls Project.
The official concedes that there may be some overlap with the two bonds but this should only be a short while.
In seeking to clarify what is going on as it relates to the bonds in contention, the executive said that in general, “mobilisation payments on such projects have a scheduled drawdown so the whole amount is never paid up front.”
It was explained, “For example, if in the mobilisation stage there is need to import heavy equipment, then the contractor may only be allowed to drawdown on some predetermined amount of the mobilisation funds when the equipment is here…When that drawdown takes place it is usually accompanied by whoever issues the mobilisation bond having a legal interest in the ownership of the equipment – perhaps a mortgage on the equipment.”
Motilall is yet to import any significant heavy duty equipment.
The official explained also that in another scenario, the project mobilisation funds would be placed in an escrow account in the joint names of the contractor and the insurance company if the bond was issued by an insurance company.
“From the escrow account, the insurance company may authorise expenditure for example, for the purchase of equipment. The insurance company would then take a legal interest (maybe a mortgage) on the equipment as soon as it is purchased.”
Otherwise, the contractor may have a counter-guarantor who has the assets to pledge on the contractor’s behalf for some proportion of the risk, if the amount authorised for drawdown, the Hand in Hand spokesman said.
There is a widely-held view that the Guyana Government is the counter-guarantor in this bond issued to Motilall.
“That way the time gap between the use of funds for buying say heavy equipment and the equipment being mortgaged to the bond issuer would be protected.”
The official explained that another example on the whole project, “payment funds on such contracts are never made up front so there is little risk of the contractor escaping with the funds or building a completely unsatisfactory road (say the project is a road).”
It was explained that as the project reaches pre-determined milestones, the project evaluation unit would approve it for further drawdown, “otherwise the employer (such as the Government) would insist on the stage being completed…Only when the road is completed and the employer gets a satisfaction note from the project evaluation unit and the defects liability period would be completed, would there be final payment.
The only official word thus far from the insurance company was from its Chief Executive Officer, Keith Evelyn, who in a statement to the media said that “With these types of bonds, the insurance company would generally insist on its exposure being protected by some form of collateral.” According to Evelyn, protection may be represented by cash, property or project equipment, counter guarantees and such like.
“Insurers also reinsure these risks…Usually; the final position is a combination of these. By putting together all the premiums it receives from a large number of contractors into an insurance fund, the insurance company can meet the claims of the few.”
Evelyn contends that with respect to the Amaila Falls Road Project, “the bonds issued to Synergy take effect and expire at different times.
This newspaper had reported that Hand in Hand Insurance Company is in no danger of losing the US$3M it is prepared to post as bond for Makeshwar Fip Motilall.
Earlier this year, Head of NICIL, Winston Brassington, had remarked that in the wake of the government granting a US$15.4 million contract for the construction of the road leading to the Amaila Falls hydroelectric project, Hand in Hand had posted the bond on behalf of the contractor.
The bond will cushion the government in the event of a failure on the part of the contractor to deliver on the project and within the specified time frame of eight months. The bond is about 20 per cent of the project cost.
One of the Directors for Hand in Hand, has told this newspaper however that the performance bond will not be effected until there is some collateral provided by the contractor.
Asked to be more specific, the Director said that Motilall has pledged the heavy-duty equipment he is scheduled to be importing to construct the road project.
According to the contract, Motilall was to have begun procuring the equipment from April 15, last, the first start-up date of the project. Since then Motilall has imported four all terrain vehicles and one grader.
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