News

Why Assignment Clauses in Performance Bonds Matter

17 November 2025

We’re seeing an increasing number of Employers and their solicitors requesting changes to the assignment clause within Performance Bonds. On the surface, these tweaks may seem harmless, but they can have far-reaching implications for both the Surety and the Contractor.

A typical bond includes a clause such as:

“This Guarantee Bond and the benefits thereof shall not be assigned without the prior written consent of the Guarantor and the Contractor.”

This is standard industry wording. It ensures that the Surety, who underwrites and guarantees the bond, knows exactly who the beneficiary is.

However, Employers often propose alternatives, for example:

“This Guarantee Bond and the benefits thereof shall not be assigned on more than one occasion without the prior written consent of the Guarantor and the Contractor.”

“The Employer may assign or charge the benefit of this Guarantee Bond without the prior written consent of the Guarantor and the Contractor to any person, firm or company providing finance to the Employer for the construction of the Works...”

While these variations are usually well-intentioned, they raise real concerns for Sureties, and, crucially, for Contractors too.

Why Assignment Can Increase the Surety’s Risk

When a Surety issues a Performance Bond, it underwrites the guarantee based on three key factors:

Who the Employer is, their reputation, commercial conduct and likelihood of making a fair claim.
Who the Contractor is, their ability, track record and financial standing.
The Contract, the agreed terms, obligations and value.

Changing the beneficiary through assignment changes that entire equation.

Example 1: Assignment to a Bank or Funder

An Employer assigns the bond to a bank financing the project.
Banks are risk-averse and may issue a claim immediately on contractor default to secure their position, even if the breach is minor.
The Surety’s exposure increases, because the new beneficiary is far more likely to enforce the bond aggressively than the original Employer.

Example 2: Sale of the Development

If a developer sells the project and assigns the bond to a buyer, the new owner might not understand the contract’s history or scope.
They could attempt to claim for issues that were commercial disputes rather than genuine defaults.
Result: an unexpected claim and potential legal challenge over entitlement.

Example 3: Cross-Border or Insolvency Risk

Assignment to an overseas investor or SPV introduces new jurisdictional and enforcement risks.
A domestic bond suddenly becomes subject to foreign law or a dissolved entity, a completely different risk profile from the one underwritten.

Why Sureties Require Consent

Requiring consent is not about obstructing an Employer. It’s about ensuring that:

The Surety understands who the new beneficiary is.
The bond remains legally enforceable and aligned with the original risk profile.
Claims can be handled clearly and fairly.

Sureties are pragmatic and rarely refuse a reasonable request. But they must retain the right to review any proposed assignment before it becomes binding.

Why Contractors Should Also Care

Contractors often feel pressured to agree to employer-requested wording changes during tender negotiations. They may see it as a small concession to secure the job but it isn’t.

Every bond issued by a Surety is backed by the Contractor’s indemnity.
If the bond is assigned without consent and the new beneficiary makes a claim, the Contractor remains fully liable to reimburse the Surety under that indemnity, even if the Surety never agreed to the reassignment.

In simple terms:

An assignment increases the chance of a claim.
Any payout made by the Surety is recovered from the Contractor under their indemnity.
Therefore, open assignment rights directly increase the Contractor’s personal and corporate exposure.

Contractors should therefore be aligned with their broker and Surety, not the Employer, when these changes are proposed. The broker’s role is to protect both the Surety and the Contractor from unnecessary risk, ensuring the bond remains enforceable and proportionate.

The Balanced Position

Most Sureties will accept an assignment subject to prior written consent, and will not unreasonably withhold or delay that consent.
This gives the Employer flexibility to fund or refinance projects while preserving the Surety’s ability to review new risk and keep the bond valid.

A simple notification and consent process ensures all parties remain protected.

In Summary

An assignment clause isn’t a minor legal technicality, it defines who the Surety is guaranteeing for.
Allowing reassignment without consent can expose both the Surety and the Contractor to higher risk and unexpected claims.
Consent protects everyone’s position and keeps the guarantee clear, fair and enforceable.

If you’re reviewing or negotiating Performance Bond wording and want to understand how proposed amendments could affect your risk, our specialist team at Surety Bonds and Guarantees can help.