Road & sewer bonds
NHBC offers a discretionary facility to A1*, A1, and A2 registered builders, whereby we will provide bonds to local authorities and water companies at the request of those builders, subject to certain guidelines.
1. Bonds for builders
1.1 If you do not have the above premium rating but are developing a site for a housing association, NHBC may still be able to provide bonds as long as certain conditions are met (see Conditions, Indemnity, Procedure and Housing associations).
1.2 NHBC will need to see copies of your accounts for the last 3 years. We reserve the right to request further information such as management accounts and to ask for up-to-date accounts from time to time.
1.3 The facility is available throughout the United Kingdom and the Isle of Man in respect of road and sewer agreements and, in certain circumstances, planning and open spaces agreements.
1.4 The facility is only available for sites that are registered or will be registered with NHBC for cover under one of the Buildmark schemes.
1.5 NHBC is only able to provide bonds that have a maximum life not exceeding five years.
1.6 NHBC is unable to bond work which will not be adopted.
1.7 NHBC will set a maximum total value for bonds. This is calculated by multiplying £3000 by the number of homes registered by you with NHBC for Buildmark cover in the previous four calendar years.
2. Bonds for housing associations (Please also see section 8)
2.1 NHBC is able to provide bonds direct to housing associations if the work is being carried out by an NHBC registered builder.
2.2 It will not be necessary for the registered builder to have A1 or A2 premium rating.
2.3 The contents of paragraphs 1.3, 1.4, and 1.6 apply equally to housing associations as to NHBC registered builders.
3. Conditions
3.1 NHBC will only provide bonds:
3.1.1 relating to roads, sewers and open spaces and, in certain circumstances, work required under planning agreements where the work to be bonded is connected with a housing development. NHBC is not able to provide bonds which are simply to secure the payment of money or to secure performance in favour of an organisation other than a local authority, water company, new town or urban development corporation or government department;
3.1.2 for sites or phases of sites registered or to be registered with NHBC for cover under one of our Buildmark schemes, within two years of the date of the bond. NHBC is not able to provide bonds where building work will not start within that time;
3.1.3 where NHBC considers the bond required is reasonable when set against the cost of the work covered by the adoption agreement;
3.1.4 where the total period of NHBC's liability does not exceed five years;
3.1.5 under Section 220 Highways Act 1980 (advanced payments code) providing the bond is cancelled within 3 months and replaced by a Section 38 agreement. An extension to this period may be agreed with NHBC in certain circumstances.
3.2 NHBC may decline to enter into a bond if the cumulative value of the bonds for that applicant is, in the opinion of NHBC, too great (see section 1.7).
3.3 Generally, NHBC is not able to provide bonds where the individual value is greater than £500,000.
3.4 Each phase of the site should be the subject of a separate bond unless there are particular difficulties that prevent this arrangement on a specific site.
3.5 If you leave the NHBC Register, or dispose of the bonded site to another organisation, you must make alternative bond arrangements and have NHBC released from liability.
3.6 NHBC may decide not to provide further bonds for you if:
3.6.1 homes on a site covered by an existing bond provided by NHBC are not registered with NHBC;
3.6.2 you do not obtain reduction or cancellation of a bond at the appropriate time;
3.6.3 any payment due under Section 6, Charges is not paid.
4. Indemnity
4.1 As security for the very considerable liability that NHBC will be undertaking on your behalf a counter indemnity covering all bonds will be required.
4.2 In the case of a group of companies NHBC will require the parent or ultimate holding company to enter into a single general indemnity covering the bonds of all the subsidiaries. The parent or holding company need not be a registered builder with NHBC unless it intends entering into adoption agreements itself.
4.3 In certain circumstances NHBC may require an indemnity from the directors or others involved in a company.
4.4 In each case the indemnifier agrees:
4.4.1 to complete the roads and/or sewers and/or other bonded works in a good and workmanlike manner with due diligence and in accordance with the adoption agreement;
4.4.2 that if the work is not carried out in accordance with (a) above NHBC may, without reference to you and at your expense, have the work done or pay the local authority or water company the cost of the works.
4.4.3 to reimburse NHBC immediately upon demand if any payment is made under the bond;
4.4.4 that any breach of the indemnity will amount to a breach of NHBC Rules and sanctions may be applied.
4.5 If the site is owned by someone else (who may or may not be registered with NHBC - see section 5.1.1) an indemnity will also be required from the site owner. You will need to be a party to the adoption agreement as well as the site owner (see section 6.3 and section 8 where the site owner is a Housing Association).
If you are negotiating to build on a site where ownership will not be transferred to you, please mention the indemnity early on in your negotiations with the site owner so that it may be made a condition of the development contract.
Separate arrangements apply in the case of consortium developments (see section 5).
5. Consortium arrangements
5.1 Special conditions will apply where sites are being developed by more than one NHBC registered builder operating in a consortium.
5.1.1 If the site is in the name of a company owned by the consortium members and that company is not registered with NHBC you should contact NHBC as soon as possible with full details. (Please note that NHBC normally requires the seller of the homes to be registered with NHBC unless special arrangements are made to enable the issue of Buildmark. Please discuss your requirements as early as possible.
5.1.2 An indemnity will be required from each consortium member on a joint and several basis on behalf of the site owning company. That company may also need to provide an indemnity. These indemnities will be in addition to any standard indemnity already given (see section 4).
5.1.3 Where no separate consortium company is formed the value of the bond will be divided between the registered builders according to the proportion of the site owned by each. Each builder will have responsibility in the same proportion to repay NHBC all sums paid out by NHBC pursuant to its obligation under the bond.
6. Charges
The following charges apply in connection with the bond facility and these may be changed by NHBC at any time after giving reasonable notice:
6.1 An administration charge (VAT exempt) for each bond processed. This is payable when you send the bond to NHBC for processing. The charge will not be refunded if the bond is later withdrawn before being sealed by the authority or water company.
6.2 A charge for time for which a bond remains on risk after the expiry date (see below):
6.2.1 When the bond is processed an assumption will be made that the bond will become operative one month after the processing date (but see section 6.2.7).
6.2.2 By reference to the agreement the construction and maintenance periods will be added together with a period of grace (see section 6.2.9) and an expiry date recorded (If no date is stated in the agreement/bond then the construction period will be as agreed in writing between NHBC and the builder). On or before that expiry date the work should be adopted and the bond cancelled. In Scotland and Northern Ireland the period for construction of the works is generally fixed at 3 years followed by a 1-year maintenance period.
6.2.3 Six weeks before the expiry date a letter will be sent to you warning that a charge will be levied unless cancellation is obtained before the expiry date. Please note that it is your responsibility to obtain cancellation of the bond and provide NHBC with written confirmation of cancellation from the Local Authority/water company.
6.2.4 If no cancellation is received invoices will be raised with effect from the expiry date.
6.2.5 Subject to the minimum mentioned in section 6.2.6 the charge is levied quarterly in advance, based on the outstanding value of the bond, and at the following rates: 0.0625% per quarter for the first year 0.125% per quarter for the second year 0.25% per quarter for the third year 0.5% per quarter for the fourth year 0.75% per quarter for the fifth year 1% per quarter thereafter
6.2.6 The minimum charge invoiced will be £20 (VAT exempt). The minimum charge will continue to be invoiced quarterly until the percentage charge exceeds this amount. The full actual amount will then be invoiced.
6.2.7 If the agreement is not completed by the authority during the one month mentioned in section 6.2.1 you should notify the actual date it is completed and the expiry date will be adjusted accordingly. (NHBC reserves the right to require confirmation of the completion date.)
6.2.8 NHBC regrets that no refund can be made in respect of any bond cancelled during the period for which a charge has been made.
6.2.9 The period of grace referred to in section 6.2.2 will be calculated as follows: England and Wales
Large builders over 1,000 homes a year - 12 months
All other builders up to 1,000 homes a year - 6 months
6.2.10 NHBC regrets that we are not able to take into account any extension of time granted by the authority, water company, etc.
6.3 If a housing association chooses, it can pay an additional charge instead of providing the indemnity detailed in section 5.5. The charge will be 5p per £100 of the development contract price with a minimum charge of £100.
7. Procedure
7.1 When you are negotiating agreements for works to be bonded you may nominate NHBC as the bondsman.
7.2 You should send the engrossed documents to NHBC together with:
- the administration fee;
- an application form which must be completed correctly and in full;
- one copy of the site plan coloured and marked up as referred to in the agreement showing the homes served;
- a photocopy of the agreement (and, where applicable, the bond) for NHBC's records;
- a copy of the APC notice under S219/220 Highways Act 1980 where applicable in England and Wales;
- a copy of the Construction Consent (Scotland only).
You need not send a copy of the specification for the work if it is separate from the agreement.
7.3 When all of NHBC's conditions have been met the bond will be sealed and returned to you.
7.4 You must apply to the authority (or water company) for a reduction in the value of the bond as soon as possible. You must tell NHBC as soon as a reduction is received by sending to us a copy of the authority's letter confirming the reduction. Likewise, please ensure that you obtain adoption of the works and cancellation of the bond without delay and by the expiry date.
7.5 When the work is adopted you must ensure the authority tells NHBC that the bond is cancelled as soon as that occurs.
8. Housing associations
8.1 NHBC is able to provide bonds for sites being developed by housing associations regardless of the fact that the association is not registered with NHBC and the NHBC registered builder may not be party to the agreement. We may relax the premium rating requirement (see section 1.1). However, the association must comply with the following conditions:
8.1.1 The building work must be carried out by an NHBC registered builder;
8.1.2 All homes on the bonded area have been or will be registered with NHBC for cover under one of the Buildmark schemes;
8.1.3 The required indemnities must be given in favour of NHBC.
8.2 The form of indemnity will depend on the drafting of the agreement and the parties to it:
8.2.1 If the association is named in the agreement as "developer" and has the obligations, within the terms of the agreement, to ensure that the works are completed to adoptable standard the association will be asked to give an indemnity in favour of NHBC.
8.2.2 If the association and the builder are both named in the agreement, as "landowner" and "developer" respectively, NHBC will require an indemnity from both parties. (Note: NHBC may already hold an indemnity from the builder.)
8.3 The Conditions (see section 3), Charges (see section 6) and Procedure (see section 7) will apply.
8.4 NHBC reserves the right to review an association's financial position and the source of funding.
9. Special arrangements
9.1 One of the conditions for the provision of the bond facility is the registration of all homes on the bonded area with NHBC. In very exceptional circumstances NHBC may relax this requirement. However, we will require compliance with conditions set out in section 4. Payment of an additional administration fee, which will be based on the initial value of the bond and the time it is expected to remain in place will be required. The additional fee must be paid, with the administration fee, before the documents can be sealed by NHBC.
If you have a site where this applies you should contact us as soon as possible and we will tell you if we are able to provide the bond and give you a quotation for the additional charge.
10. General
10.1 For road construction, where possible you should use the Model Form of Agreement agreed by the HBF and the Local Authority Associations.
10.2 It is not normally necessary for you to have the draft agreement approved by NHBC unless it contains non-standard requirements.
10.3 Please ensure that all details such as the periods for construction and expiry dates are entered into the documents.
10.4 Please ensure the obligations contained within the agreement fall within the conditions in this booklet. If they do not you should contact us as soon as possible as, in certain circumstances, we may still be able to provide the bond but an additional charge may be made.
10.5 Please always quote NHBC's bond reference number on any correspondence including any copy correspondence forwarded from the local authority/water company.
10.6 If you have a non-urgent enquiry about a bond or the facility generally it would help us if contact could be made in writing rather than by telephone.
Application form
To download a Road and Sewer Bond application form click here. Once complete, please return it, with the appropriate fee, to the address stated on the form.
