Types of Construction Guarantees

Because the employer, your client, carries real cost if the project fails, and their funders want that risk covered. A guarantee gives the employer security, up to the guaranteed amount and on the terms of the wording issued, 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.

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.

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.

No. We are brokers, not a guarantor, and we are not a tied agent of any single provider. We approach more than one licensed guarantor on your behalf, put the wording and terms your contract requires to them, and go through what each comes back with. Which guarantors we can approach for your business depends on their appetite and their underwriting.

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.

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.

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.

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.

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.

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.

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.