Construction Guarantees
Most contracts require contractors to provide a construction guarantees to the owner (or employer) guaranteeing the contractor’s performance undertaken in terms of the construction contract, or principal building agreement (PBA).
We offer affordable & flexible Construction Guarantee solutions for all segments of the civil & construction industry – from the small bakkie-builder, right up to large, national companies.
SECURE YOUR NEXT PROJECT IN MINUTES
No one really wants to get insurance, but why should you?
Rather have it and not need it, than need it and not have it.
Both contractors and employers benefit from construction guarantees.
For the employer, guarantees provide financial security and assurance that the project will be completed as agreed, even if the contractor defaults.
For the contractor, offering guarantees demonstrates credibility and financial stability, which can strengthen bids and build trust with clients—often a requirement for securing larger or more formal projects.
Construction Guarantee Cover Options
Performance Guarantees
Building contractors are often required to provide Performance Guarantees after being awarded a contract. Performance Guarantees provide the Employer with security should the Contractor not perform his obligations or complete the work, as agreed, in the construction Contract.
Advance Payment Guarantees
Some contracts make provision for the employer to pre-finance a contractor by making payments before the project begins. For example: When the employer agrees to give the contractor money upfront to pay sub-contractors to complete the project. An Advance Payment Guarantee will protect the sub-contractors and the Employer’s investment should the contractor suddenly go bankrupt.
Retention Guarantees
A Retention Guarantee is a financial security held by the Employer or main contractor to ensure that sub-contractors fulfill their obligations under the contract. It protects the Employer by guaranteeing that the Contractor will carry out all necessary work to correct structural and/or other defects discovered immediately after completion of the project as well as during the maintenance period.
Bid Bonds
A Bid Bond is purchased when a Contractor is bidding on a tendered Contract. The Bid Bond pre-qualifies the Contractor and provides security to the Employer/Owner by guaranteeing that the Contractor will enter into the Contract if it’s awarded.
Fuel Guarantees
A guarantee enables the fuel company to grant the retailer a credit facility, allowing the retailer to pay for the fuel after delivery, assisting the retailer in managing his cash flow. This guarantee extends to cover other trade receivables the retailer may be obligated to pay the fuel company for, in terms of their retailer or lease agreement. Trade receivables can include rental of the premises, royalties, rates and taxes, lubricant purchases etc.
Why CivilSure?
You don’t go to the doctor to get your teeth checked, you go to the specialist, the dentist.
It’s the same with your insurance — we get it. We understand the fast pace, the risks, and the realities of life on site. With deep knowledge of the civil and construction industry, we offer specialized, tailor-made insurance designed to keep your business covered, so you can keep building with confidence.
Frequently Asked Questions
Why do I need a guarantee?
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.
What types of guarantee do I need?
Different Guarantees, for different risks exist:
• 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.
Who are the parties involved?
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”.
What is the difference with a bank guarantee?
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
Why do I want to avoid calling on a guarantee?
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.
What documents should I have prepared for the application?
- 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
What will the guarantor look at when assessing my application?
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