Bonding capability of Nigerian contracting firms

Abstract

Purpose The ability of construction contractors to engage in construction bond agreement with guarantors depends on capital, experience, capacity and continuity. Using these criteria, the purpose of this paper is to provide insights into the bonding capacity of Nigerian contractors. Design/methodology/approach Factors required for bonding were examined based on a set of questions addressed to managers of contracting firms and personnel involved in issuing bonds and guarantees in commercial banks and insurance companies. The scorecard approach was employed to determine the bonding capability of the contractors. Findings Contractors’ financial strength and past performance on previous projects are the two important factors considered by guarantors in granting bond to contractors. However, the condition surrounding the bond, the legal capacity of the guarantor to issue bond and the identity of the guarantor are mostly considered by contractors in approaching a potential guarantor. Using the scorecard approach, about one-third of contractors have the necessary requirements to engage in construction bond agreement with guarantors. This ability of contractors is affected by years of experience of the firm but not by their location nor years of experience of their manager. Practical implications It is necessary for contracting firms to increase their capital base through merging, borrowing, etc., and also engage experienced professionals and workers in the execution of construction projects, as this will eventually improve their bonding ability. Social implications The study is limited to construction contractors registered with Ondo and Lagos State Governments and guarantors that are banks and insurance companies in Nigeria. Originality/value The paper specified various areas of concerns for Nigerian contracting firms in their bid to enhance their bonding ability. This will help them in overcoming various challenges and bottlenecks that may arise in securing bonds and guarantees from guarantors.