The name’s bond

Major benefits of ECA membership include the much-coveted warranty and bond schemes. All ECA members can offer their customers the benefit of a free, insurance-backed warranty and bond as a mark of their competence and quality of workmanship.

By taking advantage of this cover, a member’s client can make a claim in the event that: there is a defect in the quality of the installation, which the member has not rectified; or the work is not completed because the member’s contract is terminated.

This facility is provided to all ECA members by the Association through its wholly-owned subsidiary Electrical Contractors’ Insurance Company (ECIC). It is one of many specialist insurance products that ECIC has developed for members and other contractors in the construction industry.

The warranty scheme, originally called The Guarantee of Work Scheme, was introduced in 1947 and is one of the key advantages to customers using ECA firms. This benefit was strengthened with the introduction of the bond scheme in the late 1970s, then called The Guarantee of Completion Scheme.

Since then, there have been various changes, notably in the late 1990s following legal advice as to the status of the schemes, and again this year when the Financial Services Authority (FSA) introduced strict regulations covering the selling of financial products, including insurance policies. These regulations have made a significant impact on the way that the two schemes now have to operate and how members can offer them to their customers. Further amendments to the operation of the schemes are expected in 2006.

The bond and warranty benefits are provided individually and certificates for each scheme have to be signed separately. Copies of both certificates are issued to members already signed by ECIC. These must be countersigned by the member; the warranty has to be further countersigned by the customer.

The bond, once signed, gives the client comfort that the project will be completed to standard and within the agreed price, even if a new contractor has to be appointed following the termination of the original installer’s contract; usually because of insolvency. It acts as a guarantee that work meets agreed standards.

It is important to sign both these certificates and ensure that a copy is given to the customer for each project. There is a misunderstanding, by some, that ECA membership provides automatic blanket coverage and that the receipt of bond and warranty certificates at the time of annual membership renewal confirms such cover. This is not the case. If a member fails to follow the correct procedure, it is possible that, contractually, warranty and bond cover might not apply.

Following the introduction of the FSA’s new regulations this year, ECIC sent a letter to all members explaining the effects these have on the operation of the schemes. It also set out some of the ramifications of the regulations and the importance of members not falling foul of them by appearing to be insurance intermediaries selling insurance products.

Attached to this letter were copies of the new warranty and bond certificates incorporating the FSA’s requirements; these should be used as originals, photocopied, and signed each time a member enters into a new contract – don’t forget to copy the reverse of the certificate as well. Also attached is an Important Information Document, a copy of which should also be passed to the client for every contract.

It is very important that members comply with these regulations. If there is any doubt over the correct procedure, contact should be made with ECIC immediately.

As would be expected, the warranty and bond policies are subject to certain terms and conditions, and do not override a client’s statutory rights (which usually provide some protection for at least six years for a simple contract or 12 years when the contract is executed as a deed).

The real benefit of the ECA schemes is that they show that a third party, namely ECIC, is prepared to guarantee the quality of a member’s work and provide certainty of completion. This should give the consumer increased confidence in the contractor, and the member a resultant market advantage over its non-member competitor.

It is sensible to understand all the terms and conditions of the schemes, remembering that it is only the installation work that is covered – they do not guarantee the quality of materials and components. Two issues are of particular importance: contracts should be evidenced in writing and the bond conditions set out certain payments terms that must be met in order for cover to be valid.