In South African construction, guarantees are more than just paperwork – they determine how risk is shared between contractors and employers. A guarantee is a financial promise that protects an employer if a contractor fails to perform. But not all guarantees are created equal. The key lies in the wording.
The Two Main Types Of Guarantee Wordings
Surety (Conditional) Wordings
A surety guarantee is conditional. The guarantor (usually an insurer) only pays if the contractor has truly defaulted and the employer can prove actual loss. Default typically means a material failure to perform the contract, such as:
- Non-performance or breach of contract conditions
- Failure to complete work as required
- Liquidation or business rescue proceedings that prevent completion
In these cases, the employer must provide evidence of the default and the resulting damages before the guarantor is obliged to pay.
For contractors, surety guarantees provide breathing space. They allow disputes to be resolved, errors to be rectified, and negotiations to take place before cash leaves the guarantor’s account. They strike a balance between protecting the employer and safeguarding the contractor from opportunistic calls.
On-Demand Wordings
On-demand guarantees operate very differently. With these, the guarantor must pay immediately when the employer submits a first written demand. No proof of default, no evidence of damages, no requirement to show that the contractor failed – just a formal demand triggers payment.
The risk for contractors is severe. Even if the contractor is performing, an employer can call the guarantee at will. The impact of such a call can be devastating: damaged credit status, frozen cash flow, altered terms for future guarantees, or even liquidation.
This is why on-demand guarantees are often described as “high risk” instruments for contractors.
Why This Distinction Matters
The difference between surety and on-demand wording may seem technical, but it directly affects survival in the contracting industry. A surety guarantee protects against unfair demands; an on-demand guarantee exposes contractors to them.
Many standard contracts, such as later editions of JBCC agreements, default to on-demand wordings unless contractors negotiate otherwise. Without careful review, a contractor may sign a contract that binds them to guarantees stacked in the employer’s favour.
The Role of Specialist
The Role of Specialists
Guarantees sit at the intersection of law, insurance, and construction contracts. Their wording can shift financial responsibility dramatically, often hidden in a single phrase like “first written demand”.
At CivilSure, we have seen how these small details can make or break businesses. Our work involves negotiating fair surety wordings on behalf of contractors, ensuring that they are not left exposed to the whims of unscrupulous employers.
Measure Twice, Cut Once
if you need any help, CivilSure will assist in advising you on the risks of the guarantee that has been requested by the employer.
