CAREERTIPS: 4 types of guarantees every Construction Professional should be familiar with

A Contractor is usually required to provide at least one guarantee when he is awarded a contract. Here is why:

A guarantee

• provides the Employer with security in the event of default or non-performance by the Contractor; and
• can be issued by insurance companies or banks (the guarantor).
•  can be called upon by the Employer if:
•  the Contractor has failed to perform; and

•  the Employer himself is not in breach of the contract.

There are various forms of guarantees involved in a construction project. The main types of guarantees are:

Advance Payment Guarantees

The Employer may agree to give the Contractor money upfront to assist him with site mobilisation costs and deposit payments to suppliers. The advance payment guarantee protects the Employer if the Contractor fails to repay any of the amounts due to the Employer.

Retention Guarantees

The retention guarantee replaces the retention money usually held by the Employer. It can be called upon by the Employer if the Contractor fails to properly complete the work or fails to correct all defective work after practical completion has been reached.

Performance Guarantees

The performance guarantee protects the Employer against the risk of increased cost of completion if the Contractor fails to perform his contractual obligations. Such cost can include appointing a new contractor to complete the work.

Bid bonds / Tender Guarantees

The Employer may request that a bid must include a bid bond/tender guarantee. The Employer may call upon this guarantee in the event that the bid is retracted, and he incurs costs as a result of it.

Also read: 4 Alternative dispute resolution methods available to Construction Professionals