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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

An advance payment guarantee is a guarantee to your Subcontractors and suppliers that you will pay them for services and materials they provide to you for the duration of the project.

This guarantee protects Subcontractors from cash-strapped Contractors who allocate all their funds to honouring their building Contract, while failing to pay their Subcontractors and suppliers.

Retention Guarantees

A retention guarantee is a guarantee to replace the retention fund (usually held by the Employer) which is used to fix defects during the final completion of a Contract. This guarantee lets the Contactor free up retention funds whilst giving the Employer security to pay for defects should the Contractor not complete the project properly.

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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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.

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.

How do you get a Performance Guarantee?

When applying to get a Performance Guarantee, you’ll have to answer basic questions about your professional work experience and your company’s financial history. If your business has more than one owner, the financial credentials of all owners must be submitted.

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.

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.

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.

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.

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