Simon Streat, VP Product and Strategy
Why is the construction industry still working with paper guarantees and bonds when it could have all the advantages of going digital?
Guarantees and bonds are essential instruments in the construction business, providing the protection that companies are looking for when the pressure to perform is unrelenting and the penalties for failure can be severe.
Handling and administering these paper documents efficiently can be immensely time-consuming and complex. Businesses with offices dispersed across the UK use them for everything from parent company guarantees to ensuring performance targets are met, that land is cleared, or that advance payments for plant and off-site materials are made. Regulatory bodies such as the NHBC also require guarantees of house-builders to cover defects liability.
Documents routinely go missing but almost everyone within the industry knows that without the original, a business can do nothing to either amend a bond or receive what is due to them as a beneficiary. In the absence of the original guarantee, the bank or surety provider has no obligation to compensate a developer when a contractor falls down on the job or the supplier fails to deliver specialised plant or prefabricated building components.
Stuck in the paper era
Maintaining control of thousands of guarantees and bonds printed on paper is never going to be easy for developers and builders when each document may have multiple signatories or beneficiaries and most relate to projects managed by staff in remote, regional offices.
Amending a paper document when a builder, developer and surety-provider are typically involved (as well as obtaining confirmation from a national organisation’s regional offices), can take days or weeks.
Guarantees used by construction companies, for example, are often remitted to head office for supervision or amendment in a laborious process that leads to mistakes and hugely unnecessary delays. And when a business hits its targets early and wants to end or reduce payments for its bank guarantee, it can take for ever. If a builder completes ten houses, for instance, a guarantee may be called up ten times before it is terminated, each occasion taking up time and resources. The process of termination itself also needs agreement from all parties before the document is sent on to the bank. What is worse, without the original document, the bank will potentially ignore such a request.
None of this is straightforward. At any time, thousands of paper documents are constantly in physical transit, flowing back-and-forth, racking up costs and consuming precious staff-hours.
Digitisation is safer, smarter and faster
What a contrast with the constant visibility and access for all parties when documents are digitised and exchanged over the internet, using Bolero’s secure platform in the cloud that gives full visibility. Electronic guarantees or bonds are constantly visible to all the parties (including banks and surety-providers) but significantly, only the legal holder can amend them, with every action automatically and irrevocably logged.
The ease and speed of the exchange negates the need for documents to be couriered between the parties and their regional offices, which is when they are frequently mislaid, lost or sent to the wrong address.
Why stick with paper-based processes?
It makes it all the more incomprehensible that the construction industry, which is constantly embracing and driving innovation in all other areas, has yet to grasp the huge efficiencies of document digitisation. When documents can be passed securely between builders, contractors, suppliers, developers, banks, surety companies and regulators at the click of a mouse, it seems inconceivable that any of these organisations would want to stick with paper-based processes.
Digitising guarantees, bonds, along with the workflows that have evolved around them, will achieve major gains in cost-reduction and release of working capital for everyone in construction. No longer will businesses routinely lose money paying for bank guarantees that have outrun their original purposes but which have never been updated. The problem of lost documents will itself disappear, while the frustratingly drawn-out process of couriering paper around to gain acceptance for amendments or terminations will be consigned to the construction industry’s history.
If the industry is serious about embracing all the advantages of the digital era it must now leave paper in the bin and start managing vital documents such as guarantees and bonds on a cloud-based digitisation platform.