Section 278 bonds and how the sum is calculated
The bond in a section 278 agreement secures completion of highway works if you fail. Here is how the sum is calculated, what sits on top of it and when it is released.
The bond in a section 278 agreement is security for work you have promised to carry out on someone else's highway. If you stop, go under or walk away half way through, the highway authority uses the bond to finish the job and reinstate a road it never wanted dug up in the first place. That is the whole logic of it, and understanding that logic tells you why the sum is usually larger than your contractor's price.
Section 278 of the Highways Act 1980 lets a highway authority enter an agreement for works on the public highway to be carried out at another person's expense. The agreement is separate from the planning permission, it is signed after permission is granted, and it will not complete until the security is in place.
Why the authority takes security
A highway authority that allows a developer to build a signalised junction is accepting a period during which its network is partly built, partly dug and entirely the developer's responsibility. If the developer fails, the authority carries the cost of completing the works and any claims arising in the meantime.
The bond covers that exposure. It is not a performance incentive and it is not a deposit against defects, both of which are handled elsewhere in the agreement. It is money the authority can call on to complete works that someone else started.
That framing matters when you negotiate. Arguments that the bond is disproportionate to your covenant strength rarely land, because the authority is not assessing your business. Arguments about what it would actually cost the authority to finish the works usually do land, because that is the number the bond is supposed to stand for.
How the bond sum is built up
The starting point is the estimated cost of the highway works themselves, priced at rates the authority considers realistic rather than at your contractor's tender. From there the sum is built up through several additions, each of which is negotiable to a degree.
- The estimated construction cost of all works within the highway boundary, including traffic management, temporary works and reinstatement.
- An allowance for the authority procuring the works itself, which is normally higher than your own procurement cost.
- Inflation across the expected construction period, sometimes by reference to a published index.
- A contingency for unknowns, particularly on sites with statutory undertakers' apparatus in the ground.
- Design and supervision costs the authority would incur if it had to take the works over.
Most authorities publish the basis on which they calculate all of this. Ask for the calculation sheet rather than the total, because the calculation is where the arguable items sit. Statutory undertaker diversions are the usual flashpoint: a diversion that is included in the bond but delivered directly by you under a separate agreement is being secured twice.
Inspection and commuted sums on top
The bond is one of three payments, and confusing them is a common budgeting error.
| Payment | What it covers | When it is paid |
|---|---|---|
| Bond or other security | Completion of the works if you fail | Before the agreement completes |
| Inspection or supervision fee | The authority's officer time checking the works | Usually on completion of the agreement |
| Commuted sum | Future maintenance of items the authority would not otherwise have | Before adoption or on completion of works |
The inspection fee is normally a percentage of the estimated works value, set by the authority's published schedule and payable whether or not the works run smoothly. It is not refundable and it is not part of the bond.
Commuted sums cover the long-term maintenance liability of anything non-standard: signalised junctions, structures, tree pits, feature paving, sustainable drainage components within the highway. The sum is the discounted whole-life cost of maintaining and eventually replacing those items. Specify standard materials wherever the design allows and the commuted sum falls immediately.
Staged reduction while the works proceed
A well-drafted bond reduces as the works are completed and certified, so you are not carrying security for finished road for two years. A poorly drafted one holds the full sum until the final certificate.
The mechanism to ask for is reduction against certified value, with a floor. Typically the bond reduces in line with the value of works certified by the authority's engineer, down to a retained percentage that stays in place through the maintenance period. Negotiating that floor is usually more valuable than negotiating the headline figure, because the floor determines how long your capital is tied up.
Two practical points. First, reductions happen on certification, not on completion, and certification requires the authority's engineer to attend, so build inspection visits into the construction programme. Second, if the works are phased, ask for the bond to be phased too. Securing phase three works before phase one has started is a cost you do not need to carry.
Release at the end of the maintenance period
After the works are certified complete, a maintenance period runs during which you remain responsible for defects. Twelve months is the common length, though some authorities require longer for structures or for surfacing laid late in the season. At the end of it the authority inspects, you make good anything listed, and the security is released.
Release is not automatic. It requires the authority to issue a final certificate, and final certificates slip when the officer who ran the job has moved on. Diarise the end of the maintenance period, write to the authority a month before it expires asking for the inspection to be booked, and keep the correspondence.
Where the works are being offered for adoption under a section 38 agreement as well, the two processes interact and the section 38 security may run on after the section 278 bond is released. Read both agreements together before assuming a release date.
Alternatives to a cash bond
Cash held by the authority is the simplest and the most expensive form of security in cash-flow terms. The usual alternatives are a bond from a bank or a surety company, and a parent company guarantee where the parent is strong enough.
A surety bond costs an annual premium calculated on the bonded amount and your covenant, and it does not consume your banking facility in the way a bank bond does. Most highway authorities accept surety bonds from approved providers and publish the wording they require. Offering your own wording is a reliable way to add six weeks to the agreement.
A parent company guarantee is free but harder to get accepted. Authorities that accept them usually want audited accounts, a net asset test and a guarantee that survives the maintenance period.
Whichever route you take, the cost sits in the same part of the budget as the other obligations that bite before work starts, and it is worth modelling alongside section 278 agreements and how they follow a permission rather than treating it as a late surprise.
Budgeting realistically
Three habits keep this from derailing a cash-flow forecast.
Price the highway works properly at the Transport Assessment stage, not after permission. The bond is derived from the works cost, so an optimistic early estimate produces an optimistic bond figure that nobody will honour later.
Ask the authority for its bond calculation basis, inspection fee percentage and commuted sum rates while the application is still under consideration. All three are usually published, and all three are easier to query before you have a permission you want to implement.
Then add the three figures together and treat the total as a single pre-start cost. On schemes where the highway authority is also a consultee that has already asked for improvements, the sum can rival the planning fee several times over. Where the strategic road network is involved and National Highways has objected to the application, expect the eventual works, and the security, to be larger again.
See PlanScope pricing if you are building a cost plan that includes the supporting documents as well as the highway obligations.
This is general guidance, not legal advice. Check the position with your 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.
Frequently asked questions
What is a section 278 bond for?
It is security the highway authority can call on to complete works on the public highway if the developer fails part way through. It is not a performance incentive and not a defects deposit. Because it stands for what completion would cost the authority procuring the work itself, the sum is usually higher than the developer's own contractor price.
How is the bond figure calculated?
From the estimated construction cost of all works inside the highway boundary, plus an allowance for the authority procuring them, inflation over the construction period, a contingency for statutory undertakers' apparatus, and the design and supervision the authority would incur. Most authorities publish the basis, so ask for the calculation sheet rather than the headline total.
Are inspection fees part of the bond?
No. The inspection or supervision fee is a separate, usually non-refundable payment covering the authority's officer time, normally a percentage of the estimated works value set by a published schedule. Commuted sums for future maintenance of non-standard items are a third payment again. Budget all three separately rather than as one figure.
When is a section 278 bond released?
After the maintenance period following certified completion of the works, commonly twelve months, once the authority has inspected, any defects have been made good and a final certificate has been issued. Release is not automatic, so write to the authority before the period expires to book the inspection and keep the correspondence.
Can a parent company guarantee replace a cash bond?
Some highway authorities accept one, usually subject to audited accounts, a net asset test and a guarantee that survives the maintenance period. A surety bond from an approved provider is more commonly accepted and costs an annual premium rather than tying up cash. Use the authority's own bond wording, because offering your own adds weeks.
Sources and further reading
This article is general guidance about the planning system in England and, where stated, the rest of the UK. It is not legal or professional advice. Check your local planning authority’s validation requirements and take professional advice for your specific site.