Say you award a R20 million subcontract. Your subcontractor hands over a 10% performance guarantee, you file it, and everyone gets on with the job.
Eighteen months later they go under. You terminate, you go digging for that piece of paper, and only then do you find out who issued it, whether they can pay, and whether they were even allowed to issue it.
That is the worst possible day to read a guarantee properly. Read it the day it lands instead, starting with one question: who is actually promising to pay you?
Related reading: subcontractor insurance, what the cover looks like and who carries what.
Three kinds of subcontractor performance guarantee
Where we stand, before the comparison: CivilSure arranges insurance guarantees and is remunerated by commission when one is placed. Weigh what follows with that in mind. The checks below apply to all three, ours included.
Bank guarantees: a registered bank stands behind it. Strong security, but it can eat into the subcontractor’s banking facilities, leaving less cash to actually run your project.
An insurance guarantee means an insurer is on the hook. The word insurer on a letterhead does not settle it. It has to be a non-life insurer, the kind that writes property and liability cover, holding a licence under the Insurance Act. Licences are granted per class, and guarantees are their own class, class 13. So being a licensed insurer is not enough on its own. The licence has to cover guarantees. Banks are carved out of that class, which is why a bank guarantee does not need one.
Read the letterhead properly here. The name across the top is often an underwriting manager, a company that underwrites and runs the cover for an insurer under a binder agreement. It is not the insurer, and it is not the one whose money pays you. Find out which company is actually liable to pay you.
These guarantees can leave the subcontractor’s banking facilities free for the job, since they do not always draw on them. The insurer will still want security or a counter-indemnity from your subcontractor, so it is not free capacity.
A credit-provider guarantee comes from a business registered with the National Credit Regulator. That registration authorises credit business. It is not a banking licence and it is not an insurance licence. Whether it also covers the instrument on your desk depends on what that instrument is, and a court has ruled on exactly that question, below. A credit provider can be a sound guarantor. This is a licensing question and not a view on any company, so ask the issuer which licence covers the guarantee itself, the same way you would ask an insurer.
How any of the three affects your subcontractor’s cash flow is a separate matter from how well the guarantee itself answers. Do not read one as a proxy for the other. Whether a guarantee pays out easily depends on the wording, on how strong the issuer is financially, and on what you have to prove before any money moves.
The courts have started answering this
In March 2026 the Gauteng High Court ruled on exactly this. A guarantee company argued it was in the lending business, not the insurance business, so it did not need an insurance licence. The court disagreed. It found the guarantees really were insurance, that selling them without an insurance licence broke the law, and it ordered the company that issued them to stop. That company then asked for permission to appeal. While that application is pending, the order does not operate, so it is not being enforced and none of this is settled law yet.
The lesson is simple. Being registered somewhere does not make the paper legal. Registering with the National Credit Regulator is not the same as holding an insurance licence.
That does not make every credit-provider guarantee bad. The second question is a different one. Once a guarantee has been issued, how hard is it to get paid? On that, the Supreme Court of Appeal ruled in May 2025 in favour of the company holding the guarantees. It ruled that if a guarantee says it pays on demand, the issuer has to pay once you ask properly. They cannot start arguing about whether your contractor really failed. Proven fraud is the only exception the courts have recognised. Separately, and in every case, your demand still has to be made on time and in the exact form the guarantee sets out. And the issuer still has to have the money. That case decided nothing about who is allowed to issue a guarantee in the first place. It is about how a guarantee has to be honoured once it exists.
So there are two different questions here. Is this company allowed to issue the guarantee at all? And once issued, does it pay when you ask, or only after a fight? Don’t judge it by the badge on the letterhead. Read the document.
Five questions to ask before you sign
- Who is actually giving the guarantee? The company itself, not the broker who brought it to you.
- Bank, insurer or credit provider? That tells you which rules apply.
- If it says it is backed by an insurer, whose name is actually on the promise to pay?
- When do they pay? On demand, or only after you prove your subcontractor failed? A heading that says on demand does not settle it. Read what the clause underneath actually requires.
- Is this company even allowed to issue this kind of guarantee?
Ask them before the subcontract is signed. Afterwards you are not negotiating, you are just reading.
Who carries the risk
A subcontractor performance guarantee can say Performance Guarantee across the top, carry a registration number at the bottom, and still not do what you think it does. Your subcontractor picks it and pays for it. You are the one holding it when things go wrong, which makes the checking your job.
Send us the guarantee before you accept it. We will go through the wording with you free of charge and tell you which company issued it, what licence that company holds, and what has to happen before it pays. There is no obligation, and you do not have to be a CivilSure client.
To be clear about what that is: we are reading the wording. We are not giving you a legal opinion on whether the guarantee would hold up in court, and we cannot promise that any future claim will be paid. If you need a view on who is liable under your contract, that is a job for your attorney.
Guarantees also differ from one issuer to the next, and from one job to the next. What applies to yours is whatever your document says, and whatever the issuer agreed to cover when they wrote it.
Read it the day it arrives, while you can still ask for a different one.
Common questions
Who actually pays out on a subcontractor performance guarantee?
The company named as the guarantor on the document, which is not always the company whose name sits at the top of the page. It may be a bank, a non-life insurer, or a business registered with the National Credit Regulator, and each of those is regulated differently. The name on the letterhead is sometimes an underwriting manager running the cover for an insurer rather than the insurer itself, so the entity actually liable to pay is worth identifying before the guarantee is accepted.
What is the difference between a bank guarantee, an insurance guarantee and a credit-provider guarantee?
A bank guarantee is backed by a registered bank. An insurance guarantee is backed by a non-life insurer licensed under the Insurance Act, and that licence has to cover guarantees, which are their own licence class. A credit-provider guarantee comes from a business registered with the National Credit Regulator, a registration that authorises credit business rather than insurance.
All three can be perfectly sound. They carry different regulation, different security behind the promise, and different rules about when payment is triggered.
Is a guarantee from an NCR-registered credit provider valid?
Not automatically, and not automatically invalid either. In March 2026 the Gauteng High Court found that one issuer’s construction guarantees were in substance insurance policies, and that issuing them without an insurance licence was unlawful. That issuer applied for leave to appeal in April 2026. While that application is pending the order does not operate, so the position is not settled law.
What decides any individual case is the instrument itself and the licence held by the company that issued it, not the registration number printed at the bottom.
What does "on demand" mean on a performance guarantee?
It means the issuer pays when a proper demand is made, without investigating whether the subcontractor actually defaulted. The Supreme Court of Appeal confirmed that position in May 2025, holding that a guarantor cannot go behind the guarantee into the underlying contract dispute. Proven fraud is the only exception the courts have recognised.
A heading that says on demand does not settle it on its own. The clause underneath may still require proof of default first, so the wording is what governs.
The guarantee says it is insurance-backed. Is that the same as an insurer standing behind it?
Not necessarily. “Insurance-backed” is a description rather than a legal status. The question that matters is which licensed entity is named as making the promise to pay, and whether that entity holds a licence that covers guarantees.
Can a main contractor reject a subcontractor's performance guarantee?
That depends on the subcontract. Many subcontracts specify the form of security and who may issue it, and a guarantee falling outside that specification is commonly rejected on that basis. Whether it can be rejected in any particular case is a contractual question rather than an insurance one, so an attorney is the right person to ask about your own agreement.
When is the best time to check a performance guarantee?
Before the subcontract is signed, while asking for a different instrument is still an option. Once the subcontractor has failed, the guarantee is whatever it already says, and the terms are no longer negotiable.
Does CivilSure charge to review a guarantee?
No. The review is free of charge and open to any guarantee sent in. There is no obligation and you do not have to be a CivilSure client. We read the wording and set out which company issued it, what licence that company holds, and what the document requires before it pays.
It is a review of the wording. It is not a legal opinion on whether the guarantee would hold up in court, and not a promise that any future claim will be paid.
Sources
- High Court of South Africa, Gauteng Division, Pretoria, case 020740/2023, [2026] ZAGPPHC 245, Minnaar AJ, 23 March 2026: SAFLII, LawLibrary mirror
- Moonstone Information Refinery, “High Court rules construction guarantees fall under insurance law”: Moonstone
- Supreme Court of Appeal, cases 099/2023 and 150/24, [2025] ZASCA 64; 2025 (6) SA 552 (SCA), 20 May 2025: SAFLII
- Cox Yeats, “Clarifying the Autonomy of On-Demand Guarantees”: Cox Yeats
- Insurance Act 18 of 2017, section 5(1) and Schedule 2, Table 2, class 13 (guarantee)
- National Credit Act 34 of 2005
- Superior Courts Act 10 of 2013, section 18(1)
On the March 2026 judgment: the application for leave to appeal was filed on 15 April 2026. No outcome had been reported in any published source available at the time of writing, current to 28 May 2026.
