Construction guarantees
Materials Off-Site Guarantee
Big-ticket materials and prefabricated units often cannot be stored safely on site, and employers are reluctant to pay for what they cannot see. A materials off-site guarantee is the employer’s security for materials they have paid for but that are still in a factory, a warehouse or on the road. All applications are subject to underwriting.
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- Who issues it
- The guarantor, an insurer
- Who it protects
- The employer
- What it secures
- Materials held off site
- When it ends
- On delivery to site
- Who applies and pays
- You
What it is
Paid for, not yet on site
A materials off-site guarantee, sometimes called an off-site materials bond, secures the employer’s payment for materials or goods that have been paid for but not yet delivered to site. If they are paid for and then not delivered, for example because the supplier or contractor is liquidated, or the goods are lost or stolen before delivery, the employer can claim on the guarantee to recover the funds, up to the guaranteed amount and on the terms of the wording. The guarantee responds to the employer’s unrecovered payment, not to the loss of the goods themselves.
The employer is what contracts call your client: the party that awarded you the work, not your own boss. The guarantee protects the employer, not you. If the guarantor pays out, you remain liable to reimburse it under your indemnity.
It is used where the contract allows payment for materials held off site. In that case you would typically need to show evidence of ownership and storage, along with the guarantee, before the employer certifies payment for those items.
CivilSure arranges materials off-site guarantees for contractors across the civil and construction industry, from owner-run businesses to large national companies. Guarantees are issued by the guarantor, an insurer, not by CivilSure.
How it works
A typical scenario
The clearest way to explain it is the situation it was built for.
The problem
Nowhere to put it
You buy a large quantity of structural steel, but site space is limited so it is stored at a warehouse. You want to include that steel in the next payment claim.
The employer’s position
Paying for what they cannot see
Employers are generally reluctant to certify payment for materials that are not on site without security, because if the materials never arrive they have paid twice.
The guarantee
Security for the payment
With the guarantee in place, the employer has security for the money advanced against those materials, so they can certify the payment in the interim certificate.
The result
Procurement runs ahead
Long lead items can be secured earlier, the materials can be paid for while they wait, and the programme is less likely to be held up waiting on delivery before payment.
The trade-off
Who benefits, and what it costs you
Worth being clear-eyed about, because it runs both ways.
The employer
They can pay for big-ticket materials in advance knowing they hold security for that payment, up to the guaranteed amount and on the terms of the wording. If the materials do not arrive, the employer can call on the guarantee, subject to its wording. That security is what lets them approve off-site payments at all.
You
Where the employer certifies payment against the guarantee, you are paid for materials earlier than if you waited for delivery, which can improve cash flow and help finance procurement. Bulk materials and prefabricated units can be bought without carrying the full cost until installation.
The catch
The guarantee is the employer’s security, not yours. You pay a premium and provide collateral for it, and if it is called you remain liable to reimburse the insurer under your indemnity.
You get the cash benefit of early payment and the employer gets security for it. It does not insure the materials themselves against damage or loss; that is what a policy is for, and the two do different jobs.
Claims
What could trigger a call
These are common situations in which an employer may call on a materials off-site guarantee. Whether a demand is valid depends on the wording of the guarantee issued.
The materials are never delivered
Where materials that have been paid for do not reach site, for example through insolvency or theft of the goods in storage or transit.
Liquidation
Where the contractor or supplier is liquidated and paid-for materials remain undelivered, the employer may call on the guarantee to recover the funds, subject to the guarantee wording and to what the contract provides.
Refusal to perform
Where the contractor expressly refuses to perform its obligations, which can give the employer the right to terminate and call on the guarantee.
Ownership cannot be shown
Where the evidence of ownership or storage the contract required turns out not to hold, and the employer’s payment is unsecured as a result.
Common questions
Does it insure the materials against damage or theft?
No, and this is the distinction worth being clear on. It secures the employer’s payment for materials that do not arrive. Insuring the materials themselves against physical loss or damage is what a Contractors All Risk policy does, and a contract can call for both. Ask us and we will work through which one your contract is asking for.
When is it used?
Where the contract allows payment for materials held off site. You would typically need to provide evidence of ownership and of storage, along with the guarantee, before the employer certifies payment for those items.
What happens if I am liquidated?
If you default or are liquidated and the paid-for materials remain undelivered, the employer may call on the guarantee to recover the funds. The insurer responds up to the guaranteed amount on the terms of the guarantee. The insurer will then hold you liable under your indemnity and expect reimbursement of the amount paid.
How long does it run?
It secures the payment until the materials arrive on site and are taken into the works. Once that happens and the contract’s conditions are met, the guarantee falls away. The exact trigger is in the wording.
What does it cost?
Two main amounts, and they work differently. The premium is the price of the guarantee and is not refundable. is security held by the rather than a fee: it stays your money and is refundable once the guarantee has expired or been returned and anything owed has been settled, under the terms of your agreement. If a guarantee is called, the guarantor recovers against the securities on your facility. Both amounts are set on underwriting and shown on your facility quotation before you commit, along with any other charges that apply. Whether collateral earns interest, and on what basis, is set out in that agreement.
What do I need to apply?
- Company profile, two years of financials, three months of bank statements
- Company registration, letterhead, directors’ IDs and tax numbers
- Tax clearance and CIDB certificates
- The contract information and the wording the employer requires
It is gathered once when the facility is opened, and a guarantee request after that draws on what is already held. The full list, and what the guarantor assesses, are on Guarantees Explained.
Ready to claim for stock held off site?
Send us the contract and the details of what you are holding off site, and we will tell you what it asks for and what it would cost once underwriting is complete. No obligation either way.