This blog follows from a workshop I ran for a subcontractor company. We were looking in detail at performance bonds and parent company guarantees on construction projects. These contracts often contain so-called ‘indulgence clauses.’
No Variation Discharges the Bond
This indulgence clause was considered by the Court of Appeal in Hackney v Aviva:
“…no alteration in (1) the terms of the Contract or (2) the extent or nature of the Works to be constructed and (3) no allowance of time by the Employer nor (4) any forbearance or forgiveness in respect of the Contract by the Employer shall release the Guarantor from any liability under the Bond.”
The surety is not actually involved in the project but has made a promise to guarantee the performance of one of the project contracts. This can be an uncomfortable position as you have no control over what the contractor and employer are doing or agreeing. But over the history of bonds, some sureties have relied on fairly spurious changes to escape liability and avoid paying, based on a rule in an 1878 case, Holme v Brunskill..
This clause is intended to allow the contractor and the employer to get on with the project, without constantly seeking permission from the surety or guarantor for every minor change or extension of time and so on. Although it is really sensible, indulgence clauses are not very loveable! They are complex, technical and full of jargon.
A simpler version would be:
“the Guarantor agrees that the Contractor and the Employer can change any terms of the Contract or the Works without needing the Guarantor’s permission and that no change will prevent the Guarantor being liable under this Agreement.”