Bid / Tender Bonds
When tenders are submitted, they are usually accompanied by
Bid/Tender Bonds. The purpose of the Bond is to compensate the employer
for costs incurred in the event that the company, which is successful
in being awarded the tender, does not or cannot take up the contract.
This is probably the most common form of Guarantee, which protects
the Employer/Principal against the risk of the contractor failing to
comply with the conditions of the contract.
Traditionally, the guarantee amount is equal to 10% of the contract
sum. However, recently the new format JBCC 'fixed' (7, 5%) guarantee or
'variable' (12, 5% reducing to 2%) guarantee was introduced, of which
the latter version includes a Retention money element.
Advance Payment Guarantee / Bond
Some contracts make provision for Employers / Principals to
pre-finance a contractor by making payments before commencement of the
contract. The Employer / Principal secure such a risk by acquiring an
advance payment guarantee / bond in return.
Usually, the guarantee amount will decrease in accordance
with the percentage of the work certified. The guarantee / bond will be
equal to the pre-financed amount - usually 30%.