Collateral Documents Bonds and guarantees

‫أطراف خطاب الضمان‬

‫يقوم خطاب الضمان على عالقة ثالثية تربط بين األطراف المتعاقدة‬
‫ المستفيد من خطاب الضمان‬:‫الطرف الثالث‬ )‫ البنك (الضامن‬:‫الطرف الثاني‬ )‫ العميل (اآلمر‬:‫الطرف األول‬
‫و هو الذي يصدر بناء على طلبه و لحسابه خطاب و هو الذي يُصدر الضمان نيابة عن عميله و لحسابه ويقبل و هو الذي يصدر لصالحه خطاب الضمان‬
Beneficiary ‫بمقتضاه أن يضمنه لدى المستفيد في مبلغ الضمان‬ ‫الضمان‬
1.Tender Bonds 2. Advance Payment Bonds 3. Performance Bonds 4. Warranty (or Maintenance)
Bonds
A Bid or Tender Bonds ‫ضمان‬ This will provide protection to Performance Bonds guarantee These provide a financial
‫ المناقصة‬/ ‫العطاء‬ the Buyer when an advance or that a product will be of a guarantee to cover the
A Tender or Bid Bond is progress payment is made to certain standard and a penalty satisfactory performance of
usually for between 2% and the Seller prior to completion is payable if they are not. equipment supplied during a
5% of the contract value, and of the contract. The amount that is payable specified maintenance or
the aim is to guarantee that the The Bonds undertake that the will be around 10% of a stated warranty period.
contract will be taken up if it is Seller will refund any advance percentage of the contract The undertaking is by a bond
awarded. payments that have been made price. issuer to pay the buyer an
In the event that the contract is to the Buyer in the event that This will usually be issued amount of money if a
not taken up, then there will be the product is unsatisfactory. when a Tender Bond is company’s warranty
a resultant penalty for the This is typical in large cancelled. obligations for products that
value of the Bond. construction matters where a The Bonds act as financial are provided are not met and
The Tender Bond usually contractor will purchase high- guarantees and have no the amount will often be as a
commits both the Seller and its value equipment, plant or warranty that a bank will stated percentage of the export
Bank to joining in a materials specifically for the complete on a contract in the contract value. A warranty
Performance Bond if the project. event that the customer fails to bond may be conditional or
contract is granted. The bond will protect in the do so. unconditional.
A Tender Bonds will serve to event of failure to fulfil its A performance bond is usually If conditional, it may be a
not permit the submission of contractual obligations e.g. due issued by a bank or insurance condition of the contract that a
frivolous tenders. to insolvency. They will company to guarantee warranty bond is purchased
usually be on-demand bonds, satisfactory completion of a before a buyer makes the final
meaning that the value set out project by a contractor. payment.
in the bond is immediately When there is a task where a In the event that obligations
paid on a demand, without any payment and performance are not met, the buyer can call

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5. Parent Company
Guarantees: PCG
PCG is a form of security that
may be required by clients to
protect them in the event of
default on a contract by a
contractor that is controlled by
a parent company (or holding
company).
Typically, such a default might
be caused by the insolvency
(bankruptcy) of the contractor.
Parent company guarantees
can be particularly useful
where a small contractor is part
of a large, financially stable
group of companies.
The guarantee is given by the
parent company to the client,
and in the event that the
contractor defaults on their
obligations, the parent
company is required to remedy
Collateral Documents Bonds and guarantees
need for preconditions to be
met.
This is in contrast to a
conditional bond where there
is only liability if there is a
breach of contract (or certain
event has occurred as set out in
the bond).
6. Retention/Withholding
Retention money means an
amount withheld by a party to
a construction contract (party
A) from an amount payable to
another party under
the contract(party B) as
security for the performance of
party B's obligations under
the contract.
Retention (Retainage in USA)
is a percentage (often 5%) of
the amount certified as due to
the contractor on an interim
certificate, that is deducted
from the amount due and
retained by the client.
The purpose of retention is to
ensure that the contractor
properly completes the
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bond required then it will need the warranty bond (requesting
a bid bond, to bid for the job. payment).
At the point where the work is The bond is returned by the
awarded to the winning bid, a buyer at the end of the
payment and performance warranty period if the product
bond will be needed as security that is provided has met the
of the job completion. specifications.
7. Retention Bonds
A possible alternative to
retention is a retention bond,
where the client agrees to pay
the amounts which would
otherwise have been held as
retention, but instead a bond is
provided to secure the amount
that would have been retained.
As with retention, the value of
the bond will usually reduce
after practical completion has
been certified.
Retention bonds are way of
avoiding problems associated
with retention recovery.
Amounts that would otherwise
have been held as retention are
instead paid, with a bond being
provided to secure the amount.
Similar to retention, the bond’s

the breach, meeting all the
contractor’s obligations under
the contract (and/or covering
loss and expense incurred by
the client).
Also for new emerging co.
belong to group of companies
or Holding co. to make
customers trust in this new
entity.
Collateral Documents Bonds and guarantees
activities required of them value will usually reduce after
under the contract. the certification of practical
Retention can also be applied completion.
to nominated sub-contractors,
and the main contractor may
also apply retention to
domestic sub-contractors.
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