A Survey On Surety Bonds In Malaysia

The construction industry in Malaysia is one of the most significant industries.It plays a significant role in the development and civilization.Also,construction bonds play an essential part in a construction project too.Construction bonds are generally the agreements between three parties: owners,contractors and a third party surety company.The study aims to access the usage of construction bonds in Malaysia,from various stakeholders such as contractors,engineering consultant,sub-contractor,quantity surveyor consultant and architect.The procurement of construction bonds,understanding the benefits and challenges,the correlation between construction bonds and project success and last but not least,the claim against surety default were reviewed.To achieve the objectives of the study,data collection with questionnaires was conducted and emailed to various stakeholders,and there was a total response of sixty-one respondents,where in this case contractor has the highest rate of response.The questionnaire was distributed via email using Google Survey using the English language as the medium.After collecting the data,both Microsoft Excel and Statistical Package for Social Science(SPSS)were used to analyze the data obtained.Findings revealed that 67% of the respondents had experience in using construction bonds and among them,Performance bond has the highest frequency used as compared to other bonds.It was also shown that most organization preferred bank over insurance company when securing construction bonds.Another finding also revealed that most of the respondents understood the benefits of the construction bonds reasonably well.Results shows that surety are useful in the construction sector as it well ensures the presence of contractor at the end of the defective liability period,allows serious contractor to enter and bid the project as well as it protects the owner against the poor performance by the contractor.However,it does not fully ensure the contractor to complete the project with improved quality,within stipulated time and costs.Only a handful of the respondents have experience claiming a default against surety company too.It was also found out that the duration for the claim was rather time-consuming,which is the main characteristic of a low penalty bond existing in Malaysia's construction industry.The findings also show that when filing a claim against surety bond,the surety will take over the project where either surety or project owner will perform instead of the contractor to take over the project.Due to the characteristic of the low penalty bond within the industry,it is common for low quality contractor to take up the project as there is a low barrier for the contractor to enter and undertake the project.In conclusion,the study recommends that surety could introduce a high penalty bond,where there will be a stricter screening of the contractors so that contractors of higher quality could undertake the job.In this case,there will be a higher chance for the contractor to complete the job within stipulated time,costs and improving the overall quality of the project.Hence,this will lead to a higher project success delivery within the overall construction industry.