What is a guarantee?
• A guarantee is a legal-financial document, considered a strong and preferred security in the business world; the issuing financial body (the guarantor) is a stable institution with financial resilience.
• The document is issued at the request of the customer and includes: the purpose of the guarantee, the name of the beneficiary, the amount of the guarantee, conditions and validity.
• Upon receipt of a demand to forfeit the guarantee, the issuing body must honor it and transfer the required amount of money (in accordance with the terms of the guarantee), without the need for justifications or explanations for the reason for the forfeiture.
• The issuance of the guarantee involves a payment of fees.
• Once issued – a guarantee cannot be revoked.
• The guarantee is valid for one year, and may be renewed/extended as needed.
Types of Guarantees
• Bid Bond – For local government and government office tenders, as well as for contractors. This is a bond that tender participants are required to provide to demonstrate the seriousness of their intent. It is the only bond where forfeiture is positive, as it indicates winning the tender. The typical range is between 3% and 10% of the bid in the tender.
• Performance bond – designed to guarantee the contractor’s obligations under the contract with the client, is submitted at the time of signing the performance agreement and is valid throughout the entire performance period. The accepted scope ranges from 3% to 6% of the scope of the work.
• Inspection/Quality Guarantee – Replaces the performance guarantee upon completion of the work. The accepted scope ranges from 1% to 3% of the scope of the work and is usually valid for two years.
• Designed to secure payments — for example by shops and offices in malls and office towers.