Contractors in the construction industry are required to provide various forms of guarantees when they are awarded a contract. The purpose of the guarantees required is to provide the Employer (beneficiary of the guarantee) with security in the event of default or non-performance by the Contractor.
The ONE Construction Guarantee Policy is a market leading solution underwritten by Mutual & Federal Risk Financing Limited. Fitch ratings has assigned Mutual & Federal Risk Financing Limited’s (MFRF) a National Insurer Financial Strength (IFS) rating of “AAA (zaf)” giving absolute assurance in performance and reliability.
The policy is aimed at construction companies with successful track records of having completed projects on
time and within budget, while maintaining the highest quality standards.
Contractors don’t have to finance, or tie up valuable security or working capital in providing guarantees
Premium paid is an operating expense of the business and thus written off against taxable income
Opportunity cost of having released cash or securities
Types of Guarantees
Performance guarantee – security to the Employer for any losses or damages incurred as a result of the default and non-performance of the Contractor in failing to complete or comply with the conditions of contract. The principal purpose is to cover the Employer for the increased cost of completion as a result of the default of the Contractor.
Retention guarantee – the retention guarantee actually replaces the retention fund usually held by the Employer to remedy any defects or maintenance costs during final completion stages of the contract. The guarantee enables the Contractor to free up the retention funds whilst providing the Employer with security to fund such defects should the Contractor fail to complete the contract to the standards required by the Employer.
Advance Payment guarantee – this guarantee would be issued in the case where the Employer is pre-financing a Contractor by way of advance payment and requires security from the Contractor to protect itself from then on-repayment of any amounts due by the Contractor to the Employer.
Bid or tender guarantee – bid bonds as required by contractors when submitting tenders for a contract.