Tender Guarantee (also called ‘bid bonds’)

Most major contracts for construction are awarded through tender procedures. Tender guarantees are designed to
ensure that the tenderer:

• does not withdraw his tender before adjudication
• does not fail or refuse to accept the award of a contract in its favour
• does not fail or refuse to furnish the performance security, in accordance with the instructions to tenderers

Advance Payment Guarantee/Bond

With most major projects the contractor requires an advance payment to finance operations and to show serious intent by the employer to see the project through. Such advance payments usually range from 5 to 20 percent of the contract value. In turn, the employer will require an advance payment guarantee assuring repayment of the money paid in advance. The issue of an advance payment guarantee enables the employer to call the guarantee to get a refund of advance payments made in the event of default by the contractor. An advance payment guarantee is issued for the full amount of the advance payment. It often contains reduction clauses providing for a reduction in the maximum amount upon evidence of progressive performance, i.e. as various stages of the contract are successfully concluded.

Performance Guarantee

A performance guarantee assures payment to the employer in the event that the contractor does not fulfil his obligations in terms of the underlying contract.

Retention Guarantee/Bond

Most major project agreements call for stage payments to be made as the work progresses. Stage payments are triggered by presentation of progress certificates certified by the project engineer. These stage payment clauses frequently provide for the employer to retain a certain percentage of each stage payment as cover for any hidden defects in the completed works which may arise at a later date. Typically the percentage retained by the employer ranges between 5 and 10 percent of the stage payment.