Section 38 Bonds
What is the Section 38 Agreement?
A Section 38 agreement is a contractual agreement between a developer and a local authority or water authority that ensures the satisfactory completion of a new road or sewer system before it is adopted by the relevant authority. It serves as a guarantee that the developer will construct or repair the road or sewer to the required standards.
Under a Section 38 agreement, the developer agrees to provide a bond or cash collateral equal to the value of the road or sewer works. This bond or collateral covers the roadway or sewer until the end of the Making Good of Defects period, during which any necessary repairs or corrections must be made by the developer. Once the defects period ends and the road or sewer is deemed to be in satisfactory condition, the relevant authority assumes responsibility for its maintenance and upkeep.
The purpose of the Section 38 agreement is to protect the local authority or water authority from potential financial burdens if the developer fails to meet the required standards or if additional costs arise during construction or repairs. The bond or cash collateral provides a form of security for the authority, ensuring that funds are available to cover any necessary works in case the developer is unable to fulfill their obligations.
What we require:
Provide us the details of the Contract which is the subject of the Section 38 Agreement (Road or Sewer Bond) requirement, including Bond amount and period for which it will be required, together with a completed application form plus:
A specimen or draft of the Section Agreement wording as provided by the relevant authority
Copies of the drawings / plans that attach to the Section Agreement
A copy of your last published full audited accounts (including consolidated group accounts if you are part of group)
A copy of your latest management accounts showing both the Balance Sheet and Profit & Loss position to the nearest quarter
On receipt of this information, the Section 38 Agreement (Road or Sewer Bond) application will be submitted to our panel of underwriters for their consideration. Our underwriters will review the applicant’s financial strength, their historic trading performance comparative to the underlying obligations of the Bond. Upon successful underwriting, we should be able to offer competitive non-binding indications of terms, as quickly as possible.
Once the applicant has accepted our terms and provided any additional information requested, we will send out the security documents for execution (such as deed of counter indemnity) and an invoice for the premium.
Following receipt of the completed paperwork and premium, we will issue the Section 38 Agreement (Road and Sewer Bond).
Types of Road and Sewer Bonds (The Section 38 Agreement)
Section 106
What is a Section 106 (s106) Agreement?
A Section 106 (s106) is a legal agreement between an applicant seeking planning permission and the local planning authority, which is used to mitigate the impact of your new home on the local community and infrastructure. In other words, a new house will mean more cars on the roads and perhaps your children will attend nearby schools, putting a little more strain on local services. An amount is set by the Local Authority depending on the size and impact of the development. The Local Authority can then use the funds in a way already specified in their local plan.
Section 220 / APC
What is a Section 220 (s220 / Advance Payment (APC) Bond?
When a developer wishes to construct a private road under private street works, or prior to entering a s38 adoptable road a Local Authority (Council) may serve a section 219 (s219) enforcement notice requesting a payment under Advance Payment Code (APC) or Bond under section 220 (s220) of the Highways Act for Private Street Works, the Bond can be entered in lieu of payment of the cash to the Local Authority, this is usually to the full value of the road. This payment or Bond is required if the developer defaults, liquidates, fails to complete the road to the standard required by the local authority, then the local authority must complete the road for the benefit of the residents.
The APC Bond usually expires when the Council are satisfied the road is up to their standard, or the developer has entered a s38 adoptable road agreement with the Local Authority which expired when the Local Authority adopt the road.
Section 185
What is a Section 185 (s185) Agreement?
A Section 185 Agreement (s185) is an agreement entered into by the developer or landowner with the water authority for a sewer diversion, if the developer is building over an existing sewer, and it must be diverted the s185 is a sum calculated at the cost of diverting the sewer should the developer fail to do so. The option is to pay the water authority the funds or enter a s185 agreement with them underwritten by a Surety
Section 104
What is a Section 104 (s104) Agreement?
A Section 104 Agreement (s104) is an agreement entered into by the developer or landowner with the water authority for a sewer connection adopted into the sewer system, if the developer is building a property and wishes to have it connected to the existing sewer system, then they must pay the cost of the connection this is a sum calculated at the cost of connecting the sewer or a formula designated by the relevant water authority that calculates the amount required at technical approval. The option is to pay the water authority the funds or enter a s104 agreement with them underwritten by a Surety
Section 38
What is a Section 38 (s38) Agreement?
Section 38 Agreements (s38) are Highways Bonds as required by local authorities. Including the Scottish Irish equivalents. The Section 38 is put in place between the Developer and The Council or relative Authority to ensure the completion and adoption of a new road system on a development. The agreement is voluntary and between a developer and the Council. The developer agrees to Bond or place cash collateral to the value of the Road Works and covers that roadway until the end of the Making Good of Defects period and issue of the final certificate by the Council at the point of adoption. The Bond risk ceases at this point. The value is usually sufficient to ensure the Council can construct/repair the road if the developer fails to do so.
How do Section 38 (s38) Agreements work?
The developers’ proposals are agreed, and technical drawings are approved. The Council produces a draft s38 Agreement for the developer to include the developers’ proposals. The developer and their surety for the bond sign the Agreement. The Agreement is then completed by the Council. The agreements are in place to cover developer/contractor failure either by sub-standard works or liquidation of the contracting company prior to completion of the works or adopting the road.
Section 278
What is a Section 278 (s278) Agreement?
Is a Highways Bond taken out with the local council by the developer to cover junction alterations. (Examples are turning circles, access points, crossings, roundabouts, traffic signals etc.) The agreement is voluntary and between a developer and the Council. This agreement contains a bond, which is sufficient to ensure the Council can construct/repair the road junction if the developer fails to do so.
How do Section 278 (s278) Agreements work?
Is a Highways Bond taken out with the local council by the developer to cover junction alterations. (Examples are turning circles, access points, crossings, roundabouts, traffic signals etc.) The agreement is voluntary and between a developer and the Council. This agreement contains a bond, which is sufficient to ensure the Council can construct/repair the road junction if the developer fails to do so.
The Section 38 Agreement (Road and Sewer Bond) Facility
If you do not presently have a particular Bond requirement but you are considering your future Bonding needs, whether this be for Performance Bonds required on upcoming Contracts or various Road and Sewer Bonds for your upcoming Developments, we can approach our markets ahead of time and investigate arranging facilities on your behalf. This will provide the comfort of knowing you have future Bonding capacity available along with an idea of the likely costs involved. Bond facilities can be arranged for any type of Bonds you may require. If you would like us to investigate Bond facilities for you, please provide us with the following information:
A copy of your latest year end annual accounts, if you are part of a Group then consolidated accounts will also be required.
A copy of your latest management accounts.
An outline of your business.
Information on the size of the bonding facility you require.
Our underwriters will need the above mentioned information before your first Bond is required so that they can carry out their financial review of your business and complete their due diligence. Their legal documentation, such as their security documents (for example the deed of counter indemnity or group counter indemnities) will also need to be in place prior to issue of any Bond.
All we require is that you complete an application form for each new Contract to be bonded, provide the Bond wording stipulated by the Employer/Beneficiary (the Bond wording can have a bearing on any rate associated with a facility) along with an occasional update (usually quarterly or 6 monthly) of your business financials.
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Advanced Payment Bonds
An Advanced Payment Bond is a guarantee, supplied by the party receiving an advanced payment, to the party advancing the payment.
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Road & Sewer Bonds are required by a Local Authority or Water Authority, they cover the Council or Water Authority if they need to construct/repair the Road or Sewer.
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