Guarantees

We facilitate the procurement of various types of guarantees (also known as bonds or sureties) via a leading insurance company, underwritten by PCBS, in respect of clients largely in the construction industry.

The following constitute a variety of guarantees on offer:

Bid or Tender Bonds

The purpose of this bond is to compensate the employer for costs incurred in instances where the successful bidder (the contractor), after winning the tender, is unable to take up the contract, for one or other reason. At the time of applying for a tender, it is usually accompanied by a bid or tender bond as part of the tender requirements.

Performance Bonds

This is the most common bond, which is intended to protect the employer/owner/principal against the risk of the contractor being unable to meet the conditions of the contract. Usually, the required guaranteed amount is 10% of the contract value.

If the contractor fails to deliver the work in accordance with the contractual plans and/or specifications, the principal, who has dutifully performed their own contractual obligations, has the legal right of action against the surety to demand and/or obtain full completion of the contract as well as enforce the owner’s right under the same contact.

Maintenance Guarantee

This is a guarantee normally against defective workmanship or materials after completion. Such maintenance guarantees can also be admitted in the place of the retainer of up to 10%, which may be varied on a case-by-case basis.

Retention Guarantee  

The purpose of these guarantees is to effectively replace the actual retention fund. It is worth noting that in most cases, contracts make provision for the employer to retain a certain percentage of the funds payable to the contractor at various stages of completion as a form of security against default or defective work.

Advance Payment Guarantee

This bond is applicable in the event where a contract makes provision for the employer/beneficiary to pre-finance a contractor in the form of payments prior to the commencement of the contract. The employer secures the associate risk by acquiring an advance payment guarantee/bond in return. The guaranteed amount will decrease in consideration of the percentage of work certified.

Materials on/offsite

This bond is intended to compensate the employer for all losses, damages and expenses that may be incurred by the employer in respect of any materials held off/on site, paid for by the same. This is also applicable in the event where the employer has not acquired ownership of materials for whatever reason, in the event of the employer lawfully being required to make payment of any sum of money to a third party in lieu of the retention of ownership or full and free possession of materials, in circumstances where the employer has paid the contractor for the said materials.

The secured amount will decrease on an on-going basis in consideration of the contractor’s usage of materials set out in the guarantee as well as, accordingly, the liability of the insurance company.

Customs and Excise Bonds

This bond protects the interests of the government department (SARS) for outstanding customs and excise duties, while providing the client (the importer/exporter) with the necessary deferral needed to improve its liquidity management.

The customs and excise duties are incurred by the importer/exporter or the clearing agent and are payable to the revenue authority, SARS. However, at this point the entity responsible for payment is unlikely to have received payment from its clients thereby creating a liquidity challenge. The revenue authority will then defer payments for a specified period, and thereby requiring a Customs and Excise bond. This deferral will take the client closer to the time expected for payments from its customers.

Alternative names for Customs and Excise bonds:

• Agent Bond
• Warehouse bond
• Removal in transit bond
• Temporary import bond
• Inward processing rebates

Requirements For Application

SME’s applying for a facility needs to fulfill certain prescribed requirements by submitting the following documents:
▸Company profile (including an organogram and copies of current and previous contracts)
▸Two years’ financial statements and three months’ bank statements
▸Letter of appointment
▸Contract information
▸Guarantee wording requirements
▸Company registration documentation
▸Copies of all members’ identity documents and income tax numbers
▸Copy of letterhead
▸Tax clearance certificates
▸CIDB certificate
All applications are subjected to a thorough analysis to establish the contractor’s risk profile. PCBS also determine contractors’ financial standing and their resource capabilities to fulfil the contract obligations. Furthermore, an owners’ character assessment is carried out