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.