The Study On The Construction Contract Guarantee/bonds System

Construction contract guarantee/bond is an effective credit instrument to guarantee the performance of a construction contract. At the same time, it is a common approach in the international building as well.Nowadays, many problems exist in Chinese construction market, such as bad quality and non-payment, which obviously related with bad performance of contract. Based on extensive investigation and analysis on construction contract guarantee/bonds internationally, combined with the consideration of the current market condition of China, a proposal of applying contract bonding system in Guangdong province construction market is developed.First, the mechanics of contract bonding system is analyzed from the view of information economics and transaction cost theory. 'Via investigation and analysis on construction contract guarantee/bonds internationally, a conclusion is given that the common international practice of construction bonding system mainly focuses on contractor's liabilities, but not the owner's, and the guarantor should be financial institution, whether banks or surety companies, and ruled by financial supervision. There're two models in construction bonding market: conditional bonds with high penalty, or unconditional bonds with low penalty.The former style has many advantages. According to the characteristics of the law and construction in our country, with considering the internationally common approach, we can conclude that the construction contract guarantee/bond should be mainly carried out with a promise. That means the guarantor will contract with the creditor, if the debtor don't pay his debts the guarantor will have to do it for him ortake the responsibility as the statement of the contract. Being keeper of common wealth, fair trade, and competition, the government should promote the building of a competitive guarantor market. To arrive this point, the key is to actively make produce of more professional surety institutions with enough capability to serve as guarantors, except for taking good advantage of the banks.To solve the non-payment problem in Chinese construction market, the author suggests to introduce the Construction Contract Guarantee Bonding System in Guangdong province first, in which both contractor's and owner's liabilities are covered. The contractor's bonding system mainly applies the high penalty conditional bonds, but low penalty unconditional bonds are also included; The owner's liability bonds, however, only conform to the common international practice for demand guarantees. The details and applying scope of mandatory construction bonding system are also discussed. Then, discussion furthers on the problems which will happen in the course of promoting the Construction Contract Guarantee Bonding System. In the end, strategies, steps and a timetable of initiating the construction bonding market in Guangdong province are given.