Construction guarantees
Types of Construction Guarantees
Most contracts ask you to put up security that the job will be done as agreed. Which guarantee they ask for depends on the stage of the contract and what the employer, your client, wants protected. Every one of them is issued by the guarantor, an insurer, arranged by CivilSure, and drawn against one facility you open once, subject to underwriting.
We arrange guarantees across the industry, from the small bakkie-builder to large contracting groups. Not sure what the contract is asking for? Send us the contract on WhatsApp and we will look into it.
Five types, usually on one facility
Wording negotiated against your contract
Surety and on-demand wordings
FSP 49912 authorised broker
The types
Every guarantee we arrange, side by side
Each type answers a different stage of the contract: bidding, starting, being paid up front, holding materials, finishing. The contract usually names the one it wants, and the wording it wants it in. What each guarantee actually covers is set out in the wording of the guarantee issued.
Performance Guarantee
Security for the employer if the works are not completed as the contract agreed. The type most contracts call for, usually required right after the contract is awarded.
Bid Bond
Security some tenders require before you can bid. It compensates the employer for the cost of re-tendering if the winning contractor does not enter into the contract.
Advance Payment Guarantee
Some contracts pay you before work starts, for example to buy materials or pay subcontractors. This guarantee is the employer's security for that money until the work catches up with it.
Retention Guarantee
Used in place of the retention money the contract holds back from your payments. Where the employer accepts it in place of retention, the cash stays in your business and the employer keeps security for defects found after completion and during the defects period.
Materials Off-Site Guarantee
For materials the employer has paid for before they are delivered to site. It secures that payment, so procurement can run ahead of delivery to site.
Not sure what the contract wants
Employers name guarantees in all sorts of ways, and the wording matters more than the label. Send us the contract or the tender document and we will work through what it is asking for with you.
Tender closing before the facility is open?
A Letter of Intent can support your tender while the facility is assessed, subject to underwriting. It states that a guarantee facility is being arranged, which is often what the tender needs to see. It is also the stage to raise the wording you want, because once the contract is signed the wording is largely settled.
Quick answers
Guarantee type questions
The ones contractors ask us most often, grouped by where you are in the process.
The basics
Why do I need a guarantee at all?
Because the employer, your client, carries real cost if the project fails, and their funders want that risk covered. A guarantee covers the employer for the increased cost of completing the works if you do not perform or you default. Worth being clear-eyed about: the guarantee protects the employer, not you, and if the guarantor pays out, you remain liable to reimburse it under your indemnity.
Who are the parties on the paperwork?
Three of them. The employer, which is contract language for your client, also called the principal creditor or beneficiary: the party that awards the contract and holds the protection, not your own boss. You, called the principal debtor, in whose name the guarantee is issued. And the guarantor, the insurer that issues it and pays a valid claim. CivilSure is the intermediary that arranges it all; we do not issue the guarantee ourselves.
Why do I want to avoid a guarantee being called?
A call means the money moves first and the argument comes after. The guarantor pays the employer on a valid demand and then recovers the amount from you under your indemnity. A call can also affect your credit standing, your reputation with employers, and the premium, collateral and terms guarantors offer you on future contracts. Guarantees work like credit: the guarantor is financing your risk.
Are you tied to one guarantee provider?
No. We are brokers, not an insurer, and we are not limited to a single market. We source facilities from licensed insurers and match the wording and terms to your business.
Can I free up facility capacity during the project?
Often, yes. If your guarantee wording allows milestone reductions, the guaranteed amount can step down as the works are certified, commonly at 50% certified, at practical completion and at final completion. Send the certificates and progress documents as soon as they are issued; the paperwork is what triggers the reduction. Capacity means the room left on your facility to issue new guarantees.
Applying and what it costs
The full document list, what the guarantor assesses and what speeds an application up are on Guarantees Explained.
Do I need a facility before I can get a guarantee?
Yes. The facility is an approved limit with the guarantor, opened once; every guarantee is drawn against it. Opening one typically takes 10 to 14 working days, so start before the tender needs it. The full walkthrough lives on Guarantees Explained.
What does it cost beyond the headline premium?
Expect a minimum premium per guarantee, plus admin or re-issue fees and statutory levies. Some facilities also require collateral, which is security held by the guarantor rather than a fee, and is refundable once the guarantee has ended and anything owed has been settled, under the terms of your facility agreement. Every amount is set on underwriting and shown on your facility quotation before you commit.
Collateral and sureties
Do directors always have to sign personal suretyships?
Personal suretyships by directors are generally required unless the company is listed, but not always, and not automatically from shareholders. Whether a guarantor will relax them depends on your financials, the project profile and what alternative security you can offer. We structure and negotiate that with the underwriters on your behalf.
Is collateral always the same percentage?
No. Collateral is set case by case on underwriting, sometimes per guarantee and sometimes pooled across the facility, and it is calculated on the guarantee amount, not the contract value. For example: on a R100m contract where the employer asks for a 10% performance guarantee, the guarantee is R10m, so if the guarantor asked for 20% collateral you would lodge R2m, not R20m. Ways to reduce it: ask for surety-style wording where the employer accepts it, offer alternative security, or negotiate step-downs at milestones.
On-demand vs surety wording
Do on-demand guarantees really pay out even if I am performing?
They can. On-demand wording is pay now, argue later: if the employer's written demand complies with the wording, the guarantor pays, whatever the state of the dispute under the contract. Whether a demand is valid depends on the wording of the guarantee issued. Recovering the money afterwards happens through the contract's own dispute process, while you remain liable to the guarantor under your indemnity. This is exactly why the wording deserves attention at tender stage, before it is settled.
Can I ask for surety (conditional) wording instead?
You can ask. Surety-style wording requires the employer to prove breach and loss before the guarantor pays. Many contractors raise it at tender or appointment stage and reference it in the Letter of Intent; whether the employer accepts it is their decision, and it also moves the collateral and premium on your quotation. We put the case to the employer and the underwriters on your behalf.
This page is a summary written in plain language. What applies to you is set out in your facility agreement and the wording of each guarantee issued, and nothing here changes that. If any term on this page is unclear, ask us.
The contract names it.
We arrange it.
Whichever of the five it is, the route is the same: open a facility once, then draw the guarantee against it. Send us the contract and we will tell you what it asks for and what the timelines usually look like, so you can start early enough. No obligation either way.