In a construction context there are a myriad of micro and macro-economic risks which could impact a project’s success. This is where Guarantees come in – they are an important tool to mitigate the risk for the Employer and their project funders. The ultimate purpose of any guarantee is to cover the Employer for the increased costs of completion as a result of the non-performance or default of the Contractor.

Common types are Bid/Tender, Performance, Advance Payment, and Retention guarantees. The right type and wording depend on your contract and stage of works.

• Performance Guarantees – which protects the Employer against the increased costs of completion as a result of non-performance.

• Retention Guarantees – which enable the recovery of retention funds paid to address remedial works.

• Advance Payment Guarantees – enables contractors to be prefinanced by making payments before the commencement of the contract.

• Bid Bonds – which cover the costs of re-tendering or re-negotiating, if the awarded contract cannot be fulfilled by the appointed contractor.

There are typically three parties to a Guarantee: The Employer – also known as the “Principal Creditor” or the “Beneficiary” who awards a contract to the Contractor who is also known as the “Principal Debtor”. In order to attain the appropriate security, the Employer will require the Contractor to furnish a Guarantee, this is where the Insurer comes in. The Insurer is also referred to as the “Guarantor” or “Co-Principal Debtor”.

A Construction Guarantee from an Insurer has several distinct advantages compared to a Bank Guarantee:

• Wordings can be tailored to your needs whereas banks are unlikely to accommodate bespoke wordings

• Guarantees remain in force for the duration of the project whereas bank guarantees usually have a defined expiry date

• No pledge is made towards a lending institution and so your borrowing capacity is not diminished whereas with the bank your line of credit will be diminished

It is important to remember that the Contractor wants to avoid a Guarantee from being called up at all costs as it will have a severe impact on the Contractor’s credit status, reputation, and can potentially lead to the liquidation of the Contractor.

Even if liquidation is avoided, the damage to the Contractor’s reputation could prevent Guarantors from supporting the Contractor with future contracts and / or drastically alter the premium and collateral terms. Guarantees are similar to credit or financing a business in that they finance your risk, and that the Guarantor has right to indemnity in the event that the Guarantee be called up.

No. CivilSure is not limited to a single market. We source facilities from multiple legitimate insurance providers and, then match the wording and terms to your business needs.

Expect a minimum premium, plus admin or re-issue fees and Statutory Levies.
Some facilities also require refundable collateral, which is paid back when the guarantee ends.
We will show you every cost upfront.

Often yes. If your guarantee wording allows milestone reductions, the amount can step down at 50% certified, at Practical Completion, and at Final Completion. Send the certificates and progress documents as soon as they are issued to trigger the reduction.

(Capacity means the available limit or room you have within your guarantee facility to issue new guarantees.)

• Company profile (including an organogram and copies of the current and previous contracts)
• Two years’ financial statements and three months’ bank statements
• Letter of appointment
• Contract information
• Guarantee wording requirements
• Company registration documentation
• Copies of all members’ identity documents and income tax numbers
• Copy of letterhead
• Tax clearance certificates
• CIDB certificate

All applications are subject to a thorough analysis to establish the Contractor’s risk profile. This will include an assessment of the Contractors’ financial standing and their resource capabilities to fulfill the Contract obligations.

For Corporate Clients, emphasis is placed on:

• the financial standing of the Contractor
• the company structure and shareholding
• the Contract information
• the Guarantee wording requirements
• the securities available

• Latest signed financials and recent management accounts
• Work-in-progress schedule and pipeline summary
• Contract basics per project: client, value, start/finish, Bills of Quantities summary, cash-flow profile
• Proof of related cover (for example CAR and Liability)
• Proposed wording and any employer-required forms

Guarantees are underwritten much like credit. Underwriters monitor liquidity, performance, and project concentration throughout the year. They will ask for financials, management accounts, big-project Bill of Quantitiess, progress reports, and evidence of related insurances. Timely, complete information keeps terms stable.

Sometimes. Excluding director surety usually requires a stronger alternative security package. See the options below. CivilSure will structure and negotiate this with underwriters.

Underwriters will consider one or a combination of the following:

• Cash collateral or a ring-fenced bank account cession
• Investment Accounts

Unencumbered property

• Project bank account or escrow-style retention alternative

No. There is no law that forces shareholders to sign. Many guarantors ask for it. Whether it is required depends on your financials, project profile, control, and what alternative security you can offer. CiviSure provides the service of negotiating on your behalf.

Yes. You can secure a guarantee by lodging 100% cash collateral equal to the guarantee amount with the bank or insurer. The funds sit in a pledged or blocked account until the guarantee expires and the claims window closes. You still pay the issuer’s guarantee fee.

Benefits

• Higher approval likelihood even with weak financials
• Often less reliance on broad personal sureties
• Usually accepted by employers
• Pledged funds may earn interest, depending on the bank

Tax (Confirm with your tax adviser.)

• The cash collateral itself is not deductible
• Guarantee fees and related finance charges are generally deductible if incurred in producing income
• Any interest earned on the pledged funds is taxable

No. Collateral is set case by case and can range from 0% to 100%, sometimes on a pooled facility, sometimes per guarantee.

Quick example: Contract R100m → 10% guarantee = R10m. If the issuer wants 20% collateral, you lodge R2m, not 10% of the contract.

How to reduce collateral: Aim for surety-style wording where accepted, offer alternative security, or negotiate step-downs after milestones.

How CivilSure helps: CivilSure is not limited to one provider. We source a facility suited to you and try to structure pooled collateral where possible.

Yes. On-demand guarantees are “pay now, argue later.” If the employer’s demand meets the wording requirements, the guarantor pays. This is why wording selection matters at tender stage.

They are designed to pay quickly once a compliant demand is made. You would need to resolve the issue through the original contract dispute process between the parties involved. This is another reason to get the wording right from the start.

You can and CivilSure will petition on your behalf to use surety wordings, especially for performance guarantees. Surety wording requires proof of breach and loss before payment. It is a fairer balance for contractors. Negotiate this at tender or appointment stage and reference it in your letter of intent.

If the Contractor defaults, or fails to honour his obligations, the Owner/Employer may call on Retention Guarantees in order to correct any structural defects. The Insurer then pays the Employer the agreed-upon guarantee amount so they can find a new Contractor to complete the project. In most cases, the Insurer will hold the Contractor liable and will expect reimbursement of the amount paid.

• Improves cash flow (you receive full progress payments without deductions).

• Shows professionalism and financial strength.

• Still satisfies the employer’s need for protection against defects.

• If the contractor fails to:

  • Correct defects within the agreed period.

  • Honour obligations during the defects liability period.

  • Return to site when requested to fix defective workmanship or materials.

No.

• • A Performance Guarantee secures the overall completion of the project.

  • A Retention Guarantee specifically secures the correction of defects after completion.
    They serve different purposes but often run side by side.

Not always. Some employers prefer cash retention, while others accept retention bonds. Public sector and larger private contracts often specify them.

You submit:

• Your company’s financials and CIPC documents.

• Details of the tender (employer, value, closing date).

• Your previous construction experience.
  The insurer assesses your ability to take on the project and then issues the bond.

Not usually. Insurers may ask for some form of security if your financials are weak or the tender value is very high, but most bid bonds are issued against a small premium only.

No. It is not a deposit. You pay a premium (a fee) for the guarantee to be issued.

No. They are mostly required on public sector projects, large commercial contracts, and by certain employers who want extra assurance.

In essence, Bid Bonds provide a guarantee that the Bidder (Contractor), if awarded the Contract will enter into the said agreement and furnish the prescribed Performance Bond. A cash deposit is required which is subject to full or partial forfeiture if the winning contractor fails to either execute the Contract or provide the required performance and/or Payment Bonds.

The excess is the portion of the loss you pay before the insurer covers the balance. It varies based on the item, claim type, or risk factor (e.g., theft or overturning).

• Proof of ownership or hire

• A police report (for theft or malicious damage)

• Maintenance and service records

• Photographs of the damage

• Operator license (if applicable)

Yes, cover can be structured to apply across multiple construction sites and, in some cases, associated companies, if this is declared and approved by the insurer.

Yes, many contractors choose to cover hired-in plant under their own PAR policy to avoid being held liable for accidental damages whilst the plant is under their custody and control. Just make sure it’s properly declared.

Because they are paying you upfront (before work is done), they want financial security that the money will be repaid or recovered if you do not perform.

Not always. They are mainly used in contracts where the employer is asked to make a significant upfront payment (for mobilisation, plant, or imported materials). Many public sector contracts in South Africa require them.

The guarantee is normally issued for the exact value of the advance payment stated in the contract. As the project progresses and the advance is repaid (through deductions from interim payments), the guarantee value reduces.

• Performance Guarantee: Secures the contractor’s overall completion of the project.

• Advance Payment Guarantee: Specifically secures the employer’s advance payment until it is fully worked off or repaid.
  Both may run simultaneously but cover different risks.

If the contractor does not spend the money on the materials, contractors or equipment as agreed upon in the contract.

Liquidation of the Contractor’s business is one of the most common reasons for a Guarantee to be called up. Liquidation automatically places the Contractor in default of the contract and will thus trigger a claim for the Advance Payment Guarantee.

The Employer needs the project to be completed and will have to arrange for a replacement Contractor. This causes delays and an inevitable increase in costs.

The Contractor expressly refusing to perform his obligations and perform under the contract gives the Employer the right to terminate immediately and call up on the Advance Payment Guarantee.

Example:

Eskom Holdings Soc Ltd v Hitachi Power Africa (Pty) Ltd and Another (139/2013) [2013] ZASCA 101 (12 September 2013)

Eskom presented three performance guarantees for payment – a number of disputes had arisen between the parties concerning the performance by Hitachi of its obligations under the construction contract. Eskom alleged that Hitachi had been guilty of material and ongoing breaches of the construction contract. It complained that Hitachi had delayed the completion of the first operating unit at Medupi. It also claimed that in view of the said material breaches, it was entitled to demand payment under the guarantees.

No, PI covers financial loss caused by professional negligence. Physical damage or injury is typically covered under Public Liability or Contractors All Risk insurance, unless directly caused by a design flaw.

• Design miscalculations causing financial loss

• Incorrect specifications on a design

• Inadequate advice

• Breach of statutory duty or professional regulations

• Retroactive cover allows your current PI policy to cover work done before the policy start date—usually back to a specific “retroactive date.” This is crucial for continuous protection across projects.

• No – PI does not cover poor physical workmanship. It only covers professional errors in advice, design, or documentation that cause financial loss. Faulty work is covered under other policies, like Contractors All Risk.

Yes, you can be held liable for your subcontractor’s work, as your client has no contract with them—only with you. Your PI policy may cover this if it includes a subcontractors extension, but it won’t cover the subcontractor directly. They’ll need their own PI cover, especially if you claim against them for damages.

No. CAR covers your contract works (materials, structures under construction) against damage, and often has a small liability section built in. Public Liability focuses on injuries or damages to other people or their property. The liability cover in a CAR policy is often more limited than a stand-alone Public Liability policy.

Most Contractors All Risk (CAR) policies in South Africa have two sections:

1. 1. Contract Works Section – Covers the physical project (materials, works in progress, temporary works, free-issue materials, etc.) against accidental physical loss or damage from insured perils.
   2. Third-Party Liability Section – Often called the “Public Liability” section. This covers your legal liability if you accidentally cause injury to someone or damage to their property in connection with the project.

So yes – most CAR policies do include construction liability cover, but it is usually limited to the period of the works and to the contract site. The limits and wording may be narrower than what you can get under a stand-alone or broad-form construction liability policy.

Scenario:
You’re building a shopping centre.

• A storm damages the partly-completed roof → CAR Contract Works section pays to repair.

• A passerby is injured by falling debris from scaffolding → CAR Liability section responds if it’s within the policy’s limit.

• Six months after completion, a subcontractor’s faulty balustrade collapses, injuring someone → A stand-alone Construction Liability policy with products and completed operations cover would respond, but the CAR policy’s liability section likely would not (because the works are completed).

• Higher limits: Many CAR liability sections have lower limits than client contracts require.

• Broader coverage: Stand-alone liability can cover off-site work, completed operations, and contractual liability in more detail.

• Multiple parties under one umbrella: A broad-form policy can cover all contractors, subcontractors, and consultants without each needing separate liability cover.

• Longer protection: Liability for completed work can extend well beyond the construction period.

No. Staff injuries fall under COID  or WCA. Public Liability only covers injury to third parties—people who are not employed by you.

No. That’s covered under Contractors All Risk insurance. Public Liability only applies to third-party property damage—things you don’t own or aren’t building.