BANK GUARANTEE

(Guarantee Schemes)

BANK GUARANTEE

Its a written contract given by a bank on behalf of a customer(exporter or importer).

A guarantee from a lending institution ensuring that the liabilities of a debtor will be met. In other words, if the debtor fails to settle a debt, the bank will cover it.

TYPES OF BANK GUARANTEE

Bank Guarantee

Direct Guarantee

Indirect Guarantee

DIRECT GUARANTEE
APPLICATION

Applicant
LETTER OF INDEMNITY UNDERLYING CONTRACT

Issuing bank
GUARANTEE

Beneficiary

INDIRECT GUARANTEE
APPLICATION

Applicant
LETTER OF INDEMNITY UNDERLYING CONTRACT

Issuing Bank

COUNTER GUARANTEE

Beneficiary

GUARANTEE

Local Bank

BID BOND (TENDER BOND)

Purpose To secure any claims by the party inviting the tender on the tenderer in the event of withdrawal of the bid before its expiry date or if the bid is modified unilaterally or if the tenderer, upon being awarded the contract, refuses to sign the contract or provide further guarantees on request.

Guarantee amount In general 2% to 5% of the value of the contract.

Term Usually short term.

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Special features Quite often the party inviting tenders cannot complete the evaluation of the bids submitted within the specified time. In general the tenderers are then asked to extend the duration of their guarantees.

PERFORMANCE BOND

Purpose To secure any claims by the buyer on the seller arising from default in delivery or performance of the terms of the contract (e.g. construction, assembly, execution).

Guarantee amount Frequently 5% to 20% of the value of the contract.

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Term Until the contract has been fulfilled.

Special features In international business, "pay or extend" claims are quite often made under guarantees. This simply extends the validity of the guarantee

ADVANCE PAYMENT GUARANTEE

Purpose To secure any claims by the buyer on the seller for reimbursement of the buyer's advance payment on the contract price before delivery of the goods (or advance payment of the full contract price) in the event that the seller has failed to meet his or her contractual delivery obligations in full. Guarantee amount The amount of the instalment or advance payment.

Term Up to delivery of the goods plus e.g. 15 days.

PAYMENT GUARANTEE

Area of application In import-export business, the payment guarantee is often used instead of a documentary credit upon delivery against open account.

Purpose To secure any claims by the seller on the buyer for payment of the contract price by the agreed date. Guarantee amount Contract price or part thereof.

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Term Payment date plus e.g. 15 days.

WARRANTY GUARANTEE

Purpose To secure any claims by the buyer on the seller due to possible defects appearing after delivery. Guarantee amount Frequently 5% to 20% of the value of the contract. Term Depends on business sector. Frequently: 1 year after delivery or commissioning.

CONT

Special features In the construction trade, the guarantee for warranty obligation in the form of a simple guarantee or a joint and several guarantee is known as a building (or works) contractor's guarantee.
It can also be used in the export business as a "retention bond" (substitute for payment retention, often 5% to 10% of the value of the contract). In international business, "pay or extend"

RETENTION GUARANTEE

Purpose A retention money guarantee allows for immediate release of retention money to the contractor. The employer can get a refund of retention money released, in the event of default by the contractor.
Term Till the fulfillment of the project.

Guarantee amount Frequently 5% to 20% of the value of the contract. Special features Most major projects call for stage payments as work progresses. Often the employer retains a percentage of the payment (retention money), as cover for any hidden defects in the completed work.

AKANKSHA RAMAN (0706) ASTHA JOSHI (0717)