Bank guarantees act as an irrevocable assurance to the Client that the bank will pay the specified amount of money for which the bank is giving the guarantee for if the Bidder does not fulfil its agreed contractual obligations.In proposals, we tend to come across several requests for bank guarantees before and after contract award. While in some companies, proposals personnel do not have to deal with them, in others, it is part of the proposals function to organize and subsequently follow up to ensure that some of these bank guarantees are closed out. The below therefore provides a brief overview of each of these guarantees you may come across as a proposals person in your place of work:
- A Tender Guarantee: this is the one proposals personnel would probably have to deal with on a more regular basis as where required, it needs to be included in the proposals submission package. The Tender Guarantee is also known as a Bid Bond or an Initial Bond in some cases and is used for participation in some tenders. In some parts of the world and depending on the business line, this is a regular requirement for most tender submissions. The purpose of the tender guarantee is to cover the Client’s expenses in the event that the Bidder decides to revoke its bid or when awarded, declines the offer. The Tender Bond is usually replaced by the Performance Bond upon contract award.
- A Payment Guarantee: this should not typically be dealt with by the proposals team but it is handy to know what it means and how it works. It also depends on whether you are working on the Client’s end or the Bidder’s end of the proposals function. The Payment Guarantee is used as an assurance to the Bidder that the Client will fulfill its payment obligations as stated and agreed in the contract.
- An Advance Payment Guarantee: this is contract dependent where there is a requirement for an advance payment to be made to the Bidder. The Advance Payment Guarantee assures the Client that the advance amount will be returned to the Client if the Bidder does not fulfil its obligations as required by the Contract regarding the delivery of goods or services. Any requirement for an Advance Payment Guarantee needs to be clearly stated in the contract and agreed.
- A Performance Guarantee: this is used to assure the Client that the Bidder will carry out the work and up to the standard that was promised, otherwise, the Performance Bond then serves as a compensation, especially in cases where the Client has to employ the resources of other Contractors to finish the work which the Bidder should have done. The Performance Guarantee amount is usually stated in the agreed contract document and usually replaces the Tender Bond upon contract award.
Hope this makes it easier to identify the different bank guarantee requests you may come across in your work as a Proposals Manager.