Bid guarantees constitute a very popular means of protection posted at the stage of tender proceedings organized in relation to a specific contract. Its main purpose is protecting the interest of the ordering party if the contractor whose offer was selected makes the conclusion of the contract impossible due to their dishonest behavior.In practice, bid guarantees are only offered in the form of unconditional guarantees and the payment of the guarantee depends only on the reception of a request for payment within the guarantee validity period. The guarantor cannot verify whether the claim is justified; they rely only on the statement submitted by the Beneficiary.
The warranty bond protects the Beneficiary in cases where the subject of the contract has been completed on time but its quality is not satisfactory or if the defects are revealed after final acceptance and the contractor avoids removing them or is not able to remove them. The warranty bond validity period usually encompasses a few years and its length is currently an element of competition. Most often, however, warranty bonds are granted for the period of 36 months.
Retention money guarantees
It also happens that in accordance with the contract, the Investor does not pay the full amount due for the work performed and retains a specific percentage of the payment as a guarantee of proper performance as well as an advance for performance liability claims. Such a situation requires the contractor to provide a retention bond. Providing such a bond guarantees them that they will receive full payment for their work. In its contents, this bond is similar to the performance bond.
The requirement to provide a performance bond most often appears before the contract is signed. The bonds are to ensure proper performance of contractual obligations by the obligor / contractor. Performance bonds can guarantee the performance of two types of obligations by the Guarantor; those include claim payment and service performance. The bond amount does not exceed 10% of the contract value and the cover on the guarantor’s side is specified in detail in the contents of the autonomous guarantee. The performance bond is often combined with the warranty bond and then they are referred to as a combined guarantee. Such a form of insurance is allowed in the act in which it is stated that an amount that is not lower than 30% of the bond value must be allocated as the warranty bond. The bond amounts are tightly related to the validity periods of particular parts of the guarantee and so 70% of the bond value is released within 30 days from the day when the order is completed, and the remaining amount is released within 15 days after the end of the warranty period.
Advance payment guarantees
When the contract is financed by a beneficiary, another type of guarantee is used – the advance payment guarantee. When providing the advance payment, the beneficiary cannot be certain as to how it will be used and whether it will be returned to them. In relation to the above, the beneficiary can ask for an advance payment guarantee. The purpose of the guarantee is to assure recovery of an unsettled advance payment in the case when, for example, the contract is terminated. What is characteristic of this guarantee is that the guarantee amount is equal to the advance payment made and the period for which the guarantee is issued corresponds with the advance payment settlement period.
It also happens that, in accordance with the contract, the Investor does not pay the full amount to the contractor for the work they have performed and retains a specific percentage of the payment as a performance bond as well as a warranty bond. Such a situation requires the contractor to provide a retention money guarantee. Providing the guarantee mentioned above results in the full payment of the amount due for the works performed. In its contents, the guarantee is similar to the performance bond.
Payment guarantees constitute a group of contractual guarantees that protect financial liabilities. Guarantees of this type are very rare on the Polish market. Among them, two types of guarantees are worth mentioning:
- subcontractor payment guarantees whose purpose is to insure the investor against the work suspension or delay connected with non-performance of work by a subcontractor / subcontractors because they do not receive payment from the general contractor. A subcontractor can request for the settlement of overdue payments directly from the investor and the investor is certainly obliged to pay them to avoid delays in the execution of the contract. Thus, the investor has the right to issue a legal recourse request to the contractor. That is why the investor can ask for such a guarantee in order to be sure that the money paid by them will be returned by the contractor.
- payment guarantee for the work performed by means of which the contractor can protect themselves against improper performance of the investor’s obligation to pay for the performance of the contract. However, this type of guarantee is very rare as one of its conditions is providing the guarantee in question by the investor.