MF/1 - parent company guarantees and performance bonds

As noted in the one of our early blogs in our MF/1 series, MF/1 contains a number of model forms as appendices and these include a parent company guarantee (PCG) and a bond – or actually bonds, in the form of both a performance bond and a demand bond. The Contractor’s provision of a PCG or bond is not compulsory – its up to the Purchaser whether or not they require one. But the sanction for failing to provide one is worth noting. According to clause 8.2 of the MF1, if the Contractor fails to provide the bond or guarantee within 30 days of the date of the contract, the Purchaser can terminate the contract on 7 days’ notice. Not only this, but the Contractor then has to pay back to the Purchaser all sums paid under the contract and the Purchaser’s costs in obtaining new tenders. This seems remarkably punitive on the Contractor.