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Four types of Contract Guarantees and What They Insure

by | Aug 23, 2018 | Guarantees | 0 comments

Contract Guarantees in the construction, engineering, manufacturing and mining service industries are almost mandatory. Our range of Construction Guarantees are as varied as your requirements. Here’s a short list of the four types of Contract Guarantees and what they insure:

Performance Guarantees

A performance guarantee provides a guarantee that Contractors will adhere to the terms of their Contract, such as completing the project on time and within budget.

Bid Bonds

A bid bond provides a guarantee that if you bid on a project and are awarded the Contract, you’ll honour the terms of your bid and sign all the Contracts related to the project.

Four types of Contract Guarantees and What They Insure

Advance Payment Guarantees

In situations where the Employer agrees to pay a Contractor up front, an Advance Payment Guarantee may be required. For example: where a Contractor has to incur significant expenses before construction begins by purchasing project-specific equipment, materials or Plant.

This guarantee protect the Employer’s investment by securing the payment against default by the Contractor and also bind the Contractor to use the advance payment for the purpose stated in the contract.

Retention Guarantees

A retention guarantee is typically issued to the Employer (or main contractor) towards the end of a contract. A Retention Guarantee protects the Employer by ensuring that the building contractor or subcontractors, will continue to fulfil their contractual obligations when their final payment is withdrawn ahead of the maintenance period.

 

How to Apply for Contract Guarantees

If you need any of these Contract Guarantees, we can help, just complete this form to get started.

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When is a Performance Guarantee called on?

Building Contractors often ask us the question: When is a Performance Guarantee called on? When your company starts bidding on projects for cities, provinces or municipalities, you’ll be expected to provide assurance that you can meet the obligations detailed in the Contract.

This assurance comes in the form of a Performance Guarantee. Basically, what happens is that a surety company (an insurer or bank), for a certain fee, steps in and guarantees your performance. Surety companies don’t work directly with Contractors. Instead, they partner with brokerages like us.

What is Construction Bidding?

Construction bidding is the process of submitting a proposal/tender to build or manage a construction project. Public tenders, or those with a government department, follow different rules than private tenders. They must be advertised in advance, and they allow any qualified contractors to bid if they choose to. Private owners may opt to limit the construction bidding process to contractors they have chosen as bidders.

What is a Performance Guarantee?

A Performance Guarantee is a contractor’s promise to complete the construction project within the deadlines, while meeting all contractual conditions.

Get your Letter of Intent almost instantly

The term ‘Letter of Intent’ (LOI) is typically used to describe a letter from an Employer to a Contractor (or from a main Contractor to a Subcontractor) indicating the Employer’s intention to enter into a formal written contract for Works described in the letter, and asking the Contractor to begin those works before the formal Contract is executed. While an Letter of Intent may come in many forms, it’s essentially a communication expressing an intention to enter into a Contract at a future date.

Bank Guarantee to Fuel Guarantee

A Fuel Guarantee is security against payment default by the Retailer for fuel delivered by a Fuel Company. The Guarantee covers fuel, lubricant, rent & more

Four types of Contract Guarantees and What They Insure

Contract Guarantees in the construction, engineering, manufacturing and mining service industries are almost mandatory. Our range of Construction Guarantees are as varied as your requirements. Here’s a short list of the four types of Contract Guarantees and what they insure.

What’s the difference between a Performance Bond and a Performance Guarantee?

The term Performance Bond is often misleading, which can leave contractors confused about the difference between a performance bond and a performance guarantee. Most construction Performance Bonds are actually Guarantees. Bonds and Guarantees are related but are different. The right to claim under a Guarantee is linked to non-performance of the underlying contract. Under a Bond, the bank usually pays on demand regardless of the underlying contract.

4 Tendering Tips

Are you tired of not winning tenders? Here are some practical tendering tips to help you win a tender and comply with construction industry standards.

Winning a tender, 6 tips that could increase your chance

Make sure you provide all necessary information as set out in the tender application. These include updated tax clearance certificate and shareholding certificates, amongst other requirements.

How the tender process works

Landing a tender and the tender process can be a time-consuming and costly exercise, especially if you don’t understand the tender process, or you don’t adhere to the necessary requirements.

A bid in the tender process is issued by a private company or government department when they need to obtain specific goods or skills. The advertised bid is a Request for Quotations (RFQ) in the tender process.

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