How a highway authority sets a section 38 or 278 bond

A highway bond value is the highway authority's estimate of what it would cost that authority to finish your roads if you stopped, and it is set from a priced schedule of the adoptable works plus an uplift. It is not a fee and you do not pay it over. You buy a surety instrument for a fraction of the sum, or you hand across cash, and you get it back in stages as the works are certified. On a fifty-unit scheme the difference between a well-negotiated bond and a lazily accepted one is real working capital, tied up for two or three years.

Why the authority asks for security at all

Under section 38 of the Highways Act 1980 the authority agrees to adopt a new street once it is built to the adoptable standard. Under section 278 it allows you to alter the existing highway, typically a new junction, a widened footway or a signalised access. In both cases the authority takes on a permanent maintenance liability for something it did not build and cannot inspect continuously during construction.

The bond covers the gap between agreement and adoption. If the developer becomes insolvent, walks away, or fails to remedy defects after notice, the authority can call the bond and use the money to complete the works to standard. Residents in a half-built estate with an unadopted road are the reason the mechanism exists.

Both agreements sit alongside planning permission rather than inside it. A section 278 is usually secured by a Grampian condition or a section 106 obligation requiring the works before occupation, and the transport evidence behind it normally comes from a Transport Assessment or a Transport Statement submitted with the application.

How the sum is calculated

The starting point is a priced bill for the adoptable works only. That means the carriageway, footways, street lighting, drainage that will be adopted, structures, verges and street furniture inside the adoptable extent. Private driveways, private drainage, landscaping outside the highway boundary and anything the authority will never own should be excluded, and they frequently are not.

Three additions then get made on top of the base estimate.

1. An inflation allowance, because the authority might be completing the works two or three years after the estimate was prepared, indexed against a published construction cost index.
2. An allowance for the authority's own costs of procuring a contractor at short notice, which is higher than the rate a developer achieves through a negotiated supply chain.
3. Design, supervision and administration costs the authority would incur running the job itself.

Some authorities express the additions as a single percentage uplift on the base estimate and publish the figure in their highway development management guidance. Others build it up line by line. Ask which approach applies before you submit the estimate, because the two produce different answers and the published policy is the thing you can argue against.

Technical approval and inspection fees are separate and are usually charged as a percentage of the works cost. Those you do pay over, and they do not come back.

Bond against cash deposit

A surety bond is an instrument issued by an insurer or a bank, undertaking to pay the authority up to the bond value on demand or on proof of default. You pay an annual premium set as a percentage of the bond value, and the rate depends on the strength of your covenant. A well-capitalised housebuilder gets a rate a single-project special purpose vehicle will not.

A cash deposit removes the premium and the underwriting but ties up the full sum in the authority's account, usually earning nothing. For a developer funded by senior debt, that is normally the more expensive option once the cost of capital is counted. For a small developer who cannot get a surety to underwrite them at all, it may be the only option.

There is a separate mechanism worth knowing about. Sections 219 to 225 of the Highways Act 1980, the advance payments code, allow an authority to require a deposit before building starts where new buildings front a private street. It bites on different facts from a section 38 bond and it catches small infill developers who assumed no highway agreement was needed.

Release triggers and the maintenance period

Bond release is staged, and the stages need reading before you sign. A typical structure allows partial reductions as sections of the works are certified complete by the authority's engineer, then a step down at provisional certification, then final release at adoption.

The maintenance period runs from provisional certification and is commonly twelve months, though longer periods appear where structures, unusual surfacing or drainage attenuation are involved. During it, the bond usually reduces to a maintenance retention rather than disappearing, because defects that show up in the first winter are the whole point of the period.

Two things delay release more than anything else. Outstanding minor defects on a snagging list that nobody schedules a return visit for, and drainage that the sewerage undertaker has not yet adopted under its own agreement, which stops the highway authority signing off. Both are avoidable with a programme that treats certification as a task rather than an event.

If the works are never completed and the authority calls the bond, the surety pays and then pursues you under the counter-indemnity you gave when the bond was issued. A called bond does not make the liability go away. It changes who is chasing you.

Where the money actually leaks

The base estimate is the biggest lever, and it is usually prepared too early and too generously. Price it from a current contractor quotation rather than an outline rate, exclude non-adoptable elements line by line, and ask for the exclusions to be recorded in the agreement schedule rather than left as correspondence.

Ask for stepped reduction clauses if the draft agreement does not contain them. Ask whether the authority will accept a reducing bond that automatically steps down on certification, so you are not renegotiating each time. Where the section 278 works are small and can be finished before first occupation, ask whether the authority will accept completion in advance instead of security at all, which removes the premium entirely.

And keep the bond separate in your appraisal from commuted sums. A commuted sum is a payment for future maintenance of items the authority would rather not maintain at its own cost, such as attenuation features, structures or street trees, and it is never returned. Developers routinely confuse the two and under-budget the one that is a real cost. The wider picture of what these agreements do to a cash flow sits in our note on highway agreement costs in a development budget, and the timing risks resemble those in CIL instalment policies, where a missed date converts a manageable payment into an immediate one.

An illustrative worked sequence

Take a scheme of forty dwellings with an internal estate road, a new priority junction onto a classified road, and a length of footway widening. Illustrative only, with no figures attached, the sequence runs like this.

The engineer prices the adoptable estate road, the junction and the footway from a contractor quotation. Private driveways and the private drainage beyond the last adopted gully are struck out. The authority applies its published uplift for inflation and procurement. The bond is issued by a surety at an annual premium, and the premium is entered in the appraisal for the expected build period plus the maintenance period, not just the build.

Sections of the estate road are certified as each phase completes and the bond steps down. Provisional certification for the junction follows first occupation, and the twelve-month maintenance period begins. Final release comes after the defects visit, once the sewerage undertaker has adopted the drainage. If the programme slips by a year, the appraisal carries a year of extra premium that nobody planned for.

See PlanScope pricing if you are working out what the document side of a major application costs alongside the highway agreements.

This is general guidance, not legal advice; check the position with your local highway authority or a qualified professional before relying on it. PlanScope provides AI-assisted draft reports for planning applications. Reports should be reviewed before submission. We do not guarantee planning approval.