Road and sewer bonds are a very specialist area of the surety market and provide a financial guarantee from an independent third party (underwriter) to the Adopting Party (Local Authority or Water Company) in respect of a Developers obligations to achieve adoption of a sites highway or sewers.

Road and sewer bonds are a very specialist area of the surety market and provide a financial guarantee from an independent third party (underwriter) to the Adopting Party (Local Authority or Water Company) in respect of a Developers obligations to achieve adoption of a sites highway or sewers.

If a Developer fails to fulfil their obligations as detailed within the adoption agreement [S38, S278, S220, S104, S185], the Adopting Party are able to call upon a bond to secure the monies necessary to fund the completion or rectification of required works to bring the highways or sewers to an adoptable standard.

Once adoption of a site’s infrastructure has been achieved, the road or sewer is then transferred to the Local Authority or Water Company which is then maintained at the publics expense.

Adoption agreements are legally binding contracts obliging the Developer to satisfy any adopting party stipulations to achieve adoption and ordinarily take form in a tri-party agreement:

Adoption Agreement: Tri-Party Obligations:

1. Commitment from Developer to construct the roads / sewers to the Adopting Parties specification and the technically approved design.

2. Commitment from Local Authority / Water Company to adopt the infrastructure once constructed to their approval and all associated obligations satisfied.

3. Commitment from bondsman to pay for any outstanding or unsatisfactory works if the developer defaults on their obligations within the agreement.

4. Represents a developer’s commercial obligation to pay the bondsman for the bond.

Road / Highway Bonds

Section 38 Agreement Bond (Highways Act 1980) – Adoption of a New Highway

A Section 38 agreement is intended to ensure the completion and adoption of a new road on a new development. It is a voluntary agreement made between a developer and the local authority. This agreement requires a bond, which is sufficient to ensure the local authority has access to funds to satisfy the developers’ outstanding obligations, should they default on the particulars of the agreement.

Once the road has been constructed to an agreed standard, the new highway is then adopted by the local authority. Adoption of a new highway means that the local authority will maintain the road for the foreseeable future, and at the publics’ expense.

After receipt of Building Regulation approval, the developer should receive a notice under Section 220 of the Highways Act 1980. The assessment is made by the Highway Authority and will either be in the form of charges for individual plots, or a block assessment covering the whole development. The developer should pay the sums assessed, or alternatively enter into a Section 38 Agreement before any work commences on the construction of any building on the development.

In such cases, the bond covering the full estimated construction cost of the roads will be greatly in excess of the amount which would then be required to bring the road up to adoption standards. In such cases, the Highway Authority will, at its discretion, allow a reduction in the bond to a suitable figure which will, in its estimation, cover the cost of the outstanding work.

Section 278 Agreement Bond (Highways Act 1980) – Alteration to a Public Highway

As part of planning permission, a Developer may be required to enter into a Section 278 Agreement bond which obliges them to undertake modifications or improvements to the existing highway to account for the impact of a new development. 

The nature of the types of works a Developer is required to undertake as part of a S278 agreement include:

  • Construction of new junctions, with and without traffic lights
  • Construction of roundabouts
  • Construction of cycle lanes or improved footpath network
  • Construction of traffic calming measures (speed humps, road narrowing, etc)
  • General improvements works (street lighting, resurfacing works, etc)

The relating Section 278 Agreement bond enables the Local Authority access to funds to satisfy the Developers outstanding obligations should they default on the particulars of the agreement.

Section 220 Notice (Highways Act, 1980) - Advanced Payment Code

After receipt of Building Regulation approval, the developer should receive a notice under Section 220 of the Highways Act 1980. The assessment is made by the Highway Authority and will either be in the form of charges for individual plots, or a block assessment covering the whole development. An S220 bond therefore requires the Developer to source a surety bond which covers the estimated cost to construct a highway on a development.

An S220 bond reduces the liability on future purchasers if the road is not constructed to the agreed standards or is unfinished for any reason.

This bond is only cancelled when the Local Authority is satisfied a new highway has been constructed to acceptable standards, or a Section 38 Agreement is entered into – in which case the bind is often transferred as the associated.

Scottish Road Agreement Bond (Security For Private Road Works / Scotland / Regulations, 1985)

A Scottish Road Agreement bond is a financial guarantee provided by a Bondsman to the Adopting Party (Scottish Local Authority) before work can begin on a housing development.

This surety bond provides a guarantee to the Scottish Local Authority that the road will be completed to an adoptable standard.

A Developers’ inability to comply with the standards agreed in the Scottish Road Agreement bond will allow the Scottish Local Authority to secure a sum of money off the Bondsman (calling in on the bond), necessary to fund the completion or rectification of the road.

Sewer Bonds

Section 104 Agreement Bond (Water Industry Act, 1991) – Sewer Adoption

Under Section 104 of the Water Industry Act 1991, a developer may enter a voluntary agreement with a sewerage undertaker for the adoption of sewers serving a development. A specific condition of a Section 104 agreement is that the new sewer development meets Mandatory Build Standards (MBS), which set out the required standards in the design and construction of new sewers and lateral drains.

Once the sewer has been constructed to an agreed standard, the new sewer is then adopted by the Statutory Water Company. Adoption of a new sewer means that the Water Company will maintain the sewer for the foreseeable future, and at the publics’ expense.

The relating Section 104 Agreement bond is calculated at 10% of the estimated construction cost of the sewers (33% in Wales).

Section 185 Agreement Bond (Water Industry Act, 1991) – Public Sewer Diversion

These agreements are entered into by Developers where it has been identified that a public sewer is compromising the viability of a development project and the Developer wishes to divert or alter the route of an existing adopted public sewer.

The relating Section 185 Agreement bond is calculated at 100-110% of the estimated construction cost and provides a financial guarantee that the Developer will undertake the works to the Water Companies requirements.

An S185 bond ensures all modifications to an existing public sewer is constructed to a high standard.