Banking Litigation – Part II
After my previous article, Banking Litigation – A Road Full of Twists and Turns on important finance facilities that banks offer, I am now focusing on the types of guarantees offered by banks which are integral to banking litigation.
A bid bond is often required on construction or procurement projects from bidders to ensure the winning bidder executes his or her contractual obligations. If the bid is withdrawn or the winning bidder refuses to sign the contract, the beneficiary is indemnified and resumes the bidding process. It is usually issued for an amount of 1% and 2% of contract value.
Performance Bond or Guarantee
It may be required at the time a contract is awarded to guarantee satisfactory completion of a project. It ensures that funds are available to get the project back on track if unforeseen problems arise. It is normally issued for an amount between 5% and 10% of contract value. It assures payment to employer in the event the contractor fails to fulfill contract obligations.
Letter of Guarantee
A letter of guarantee protects the seller against non-payment and the risks associated with open account transactions. It assists with building credibility and trust. It is usually required to guarantee delivery of sale from the parent company.
This offers protection to the bond or guarantee issuing bank against the risk that an advance payment bond, a performance bond, a retention or a maintenance bond is being called unfairly by the beneficiary.
A counter guarantee is cashed in the unexpected event the obligor fails in the performance of a contract and the obligee calls upon the surety to honor the bond (on behalf of the obligor). It is also called ‘counter indemnity’.
This is when a bank opens a written certificate to the beneficiary or establishes an obligation at the consignor’s request (consignor is a person who delivers merchandise). As a guarantor, the bank has certain responsibilities to handle the debt or obligation. The rights and liabilities of the parties emanate from a contract and a bank guarantee is irrevocable.
Advance Payment Guarantee
This enables employers to get a refund of advance payments made in the event the contractor defaults.
Retention Money Guarantee
This is a retained percentage of payments for the employer as a cover for hidden defects in completed works.
This is the guarantee in construction projects to ensure that the contractor does not abandon maintenance obligations after completion of construction phase.
The contractor provides this guarantee to customs that the equipment imported shall be returned and not sold thus preventing re-export.
This guarantee allows the buyer to obtain release of goods from the carrier even if the bill of lodging is lost or destroyed. This is a kind of indemnity which is endorsed/authenticated by the Bank and given to a shipping company to get the goods released without furnishing bills of lodging.
The views expressed in this article are those of the author and do not necessarily represent the views of any organization with which she might be associated.