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Original Address: The International Project of Bank Guarantee: President of the accountant: China Overseas Engineering Corporation, Jiang Yuhua Core Tip: This paper discusses the content and types of bank guarantees and bank guarantees issued Notes. In the international engineering contracting business, the other party in order to avoid a result of breach by the loss of their own to ensure the timely signing and implementation of projects, often call for a variety of economic security, bank guarantees is one of the more common form. The so-called bank guarantee is a bank guarantee to be the applicant request to the beneficiary a written guarantee issued by an independent document is to bear the economic conditions of the contractual responsibility to ensure that evidence is a standby bank credit. The type of bank guarantee issued by a bank guarantee as the bank files a written guarantee of the independence of the main contents include the main sponsor, is a guarantor, beneficiary, security reasons, the guaranteed amount, guarantee money, guarantee obligations, claims to honor the conditions, the effective date, guarantee letter. Bank Guarantee can be divided into the following six categories. Bid Security (Bid Bond / Guarantee). Also known as the tender bid bond guarantee. Contracting country designated by the bank or in the contracting countries registered international banking institutions, or by contracting State approved contractors country central bank (such as China Bank of China) on behalf of the bidder to tender a letter of guarantee issued by it to ensure that Bidders must label does not withdraw its bid before about the book, after winning at the appointed time and after signing a contract with the owner signing the timely submission of performance bond, if the bidder defaults, the landlord can get the bank as the bidder fails to perform obligations economic compensation for losses. The tender security is submitted along with tender tender bodies, once out of guarantee, within the validity period can not be revoked. Guarantee will usually make provision in the document, the general tender offer is approximately the total amount of l% ~ 2%. Large of the total price is high, the amount of the guarantee percentage can be lower. Some tender bids not expressed as a percentage margin, but provides a fixed amount, the main security responsibility for tender security as follows: Bidders may not withdraw the tender within the validity period, the tender validity period consistent with the tender bonds, usually in the tender Notice there are provisions in general about three months (90 days), the longest 120 days to 180 days, during which the bidder may not withdraw standard. Once the successful bidder, bid notice must be received within a certain period of time, such as 7 days, 15 days or 30 days, to host business owners sign a contract. Signing time (or within 15 days after signing) must submit the performance bond. For more responsibility, bidders have failed to fulfill any of the owners have the right to forfeit the bid bond, the amount of its secured claim to the bank. If the bidder does not violate any of the above, or lost the bid, the Owner shall return the original bid bond, bidders responsibility to guarantee the appropriate lift. If the owners of reasons (such as prolonged evaluation Bid) require the contractor to extend the tender guarantee validity period, the contractor depending on the circumstances, there are three options: one refused to extend the guarantee to recover and give up the tender; second, agreed to extend the , to the bank for extension procedures, payment of fees; Third, agree to extend, and for the extension procedures, but also sent a letter to the Employer reserves the right to adjust the bid price. Usually hopeless bid to choose one, whichever is expected to bid two of the original offer low notes in the tender requirements in respect of another price adjustment can be whichever III. Performance bond (PerformanceBond / Gurantee). PB primary role is to ensure the normal performance of the Contractor under the contract obligations. If the contractor breaches occur, not by quality, quantity, scheduled to complete its obligations under the contract, the owners have the right to claim by the guarantee of its security to the bank the amount of damage as compensation for the owners. It is a necessary condition for effectiveness of the contract. Performance bond is specified by the contracting country of registry of the bank or the contracting of international banking institutions, or by the State Bank of contractors (approved for the owners), the guarantee contract issued to the owners. Performance bond in the amount of the guarantee should be specified in the engineering contract, usually 10% of the total contract amount, and some provide for a fixed amount. Performance bond length depends on the duration of the validity of the length. Usually slightly longer than the contract period. Performance Bond only fully completed and received on-site project supervision engineers before issuing a certificate of acceptance to be returned. Some of the contract, the maintenance of satisfactory service and obtain the certificate expires after the return, when the general contractor business owners are required to sign a contract agree to the following requirements: engineering contractors after final acceptance by the maintenance of a bank guarantee instead of performance bonds letter, the maximum amount of guarantee maintenance works maintenance of retention does not exceed the total amount is far below the performance bond, are reasonable and the contractor is also advantageous. In the construction period, the contractor midway breach of contract, or any suspension of construction, such as declaring bankruptcy or closed down, owners have the right by performance bond guarantees to banks to pay the full amount. If the Contractor serious delay period, or low quality of the project or other wrongful act (bribery, condoned site workers to make trouble, etc.), the owner has failed to amend after a warning, the owners can obtain the guarantee to the bank guarantee amount, and the Contractor Business expulsion from the scene, confiscated all the equipment at the site and temporary facilities. If no reason or excuse for the owners by letter of guarantee to the bank withdrawal, the contractor can recoup their losses through litigation, but because of time-consuming litigation, the Contractor shall take precautions beforehand, learn to identify possible fraud. If the project does appear delayed, for whatever reason, the contractor shall consult with the owners and notify the bank will extend the performance bond to prevent the owners of the exReplica LVpiry date of the excuse for withdrawal. Performance bond requirements of owners within the validity period is irrevocable. Contractor performance bond requirement is not transferable, the main contractor performance bond requirements of sub-contractors can be transferred to be transferred to the owners, the prime contractor to reduce the amount of their performance guarantees. Advance Payment Guarantee (Advance Payment Guarantee). Advance payment bond, also known as the deposit guarantee. Some of the works tender, the provisions of the bid after signing the contract to the successful tenderer to pay a certain percentage (the percentage of the total amount of the contract) in advance, but need to commission the winning bidder advance payment bond issued by the bank. Advance payment bond in the amount of the guarantee paid by the general advance with the owner equal to the bond principal role is to guarantee repayment of the contractor under the contract owners have paid the full advance payment. If the successful bidder responsibility (such as the middle of breach of contract, suspension of works, etc.) and not within the prescribed time limit shall be deducted from the project but also all the advances, the tender by letter of guarantee to the bank the right to obtain the guaranteed amount as compensation. Because the monthly advance payment shall be deducted from the progress of the project also, so the amount of the guarantee should advance with the balance after deduction is also reduced, the contractor out of this through the bank guarantee, it should be written in the bond clear that, during the construction period shall be monthly or quarterly consent from the owner of this guarantee where the impairment of the notice sent to banks confirmed that the owners also present their written guarantee of payment bill impairment notices and bank owners to obtain common confirmation. Engineering Maintenance Guarantee (Maintenance Guarantee). Also known as quality engineering maintenance bond guarantees. Its main role is to guarantee the contractor on the project after completion of maintenance defects, usually within one year after project. If the owners discovered the defect on the quality of the project, it shall notify the contractor for maintenance repairs, if proved to be the responsibility of the contractor, the contractor refused or unable to repair, the owners present their letter of guarantee letter of guarantee to the banks to withdraw maintenance of security in the amount of their own tissue repair. The amount of maintenance guarantee bond shall be handled according to contract documents, the validity period and engineering maintenance of the same (usually one year), maintenance of acceptance from the date of completion of the project commences. The required maintenance period, the successful completion of maintenance tasks the contractor or the project without any need to repair the defect, the owner of the Engineer shall issue the maintenance certificate, and returned to the contractor undertaking repairs. Temporary import goods tax revenue bonds. This guarantee for security contractors in the project is completed, the temporary duty-free imports of construction machinery equipment out of the Country, or pay taxes after the sale or transfer locally. This guarantee shall be submitted to the tax department of the Customs of the Country. The amount of the guarantee bond with the temporary import of equipment should be tax payment equal to a period slightly longer than the construction period. Guarantee before the expiry of temporary import of equipment out of the territory can request a certificate to the customs authorities to reclaim the tax guarantee, to pay the Bank. If equipment has been reported that loss, the management and certification, the only claim back guarantee. If the tax department finds that the contractor without the device for other non-exempt items, or privately sold on the market, the contractor may be considered tax evasion behavior. Customs and tax authorities have the right to withdraw money from banks by the guarantee, as the taxes and fines. Import goods duty-free revenue bond project. The role is to guarantee security contractors in all imported materials and equipment duty free for their contracting work. After completion of the project if the remaining material, or to pay taxes after the sale, or transported out of the country or transfer to another duty-free project (the latter to extend the guarantee period). The amount of the guarantee bond with the same amount of taxable supplies. Are also consistent with the duration period. Before the expiration of the guarantee, the contractor obtain from the owners of all materials and equipment duty-free exemption for the project documents, and present to the tax authorities, the refund of the bond, pay the Bank. Tax authorities found the contractor will be duty-free imports of materials and equipment used for other non-exempt projects, or sale, the contractor will be treated as tax evasion behavior, rely on withdrawal to the bank guarantee to pay an overdue tax penalties. Notes on bank guarantee issued by careful examination of tenders, contract terms. Open a bank guarantee is a tender, contract basis. International engineering contracting approach used on contract, to provide for the tender by the tender, if you want to participate in the bidding, means to accept the tender requirements. Therefore, the project prior to bidding contractors to deal with the RFP requirements of various types guarantee a careful analysis of research, particularly the guarantee amount is too high, whether the long period, without serious unreasonable, whether it is “the first claim on demand “guarantees and so on. Meanwhile, the contractor should also investigate the financial situation of the owners, credit, project financing and reliability. For private projects, the contractor requested by owners of various types of performance bond currencies, should also require owners to provide bank guarantees of payment or proof of payment of the credit. For government projects, to examine the political, economic stability and engineering reliability of funding sources, with information on the requirements of the project contract or deferred payment, even if the government insisted the project should also be paid by bank guarantee or deferred payment credit card. Guarantee shall be governed by and construed in the law which country problems. In general, the bond should be issued by a bank guarantee law of the country to restrain and explained. But the beneficiaries often require their own legally binding and interpretation. If the parties disputed this, and not make any compromise can be third country according to international commercial law or legal interpretation. Rejected as “negotiable,” the guarantee. Bank of the responsibility of the undertaking should be limited to between the contractor and the owner, the general guarantee is not transferable, but some of their rights under the contract is the contract for sale, then the letter of guarantee with this contract is likely to transfer However, the resulting higher risk, therefore, should try to avoid accepting such “negotiable,” the guarantee. Rejected as sub-contractors should be noted that the general contractor for the following requirements: deposit by the subcontractors and general contractor with the name of guarantee issued to the owners. Because it may cause the general contractor on the owner in other ways subcontractors involved breach of contract, so that sub-contractors suffer. Terms of the amount of interest rate guarantee. When asked to repay some of the advance payment bond plus an interest, that at a certain rate, until the actual repayment of advance payment from the date of calculation. If you want to pay additional interest, you should determine in advance when, where, in what interest rate should be determined by a mutually agreed, a more appropriate fixed interest rate. And not to add such as “interest rate on commercial business terms” provision is not clear so as to avoid future disputes. Advance Payment Guarantee decreasing terms. The contract should provide that margin diminishes with the advance payment deduction is also the contractor to regularly diminishing the value of the owners signed a formal notification after the bank admitted, both to make payments in the amount and should be consistent, but also gradually reduce the guarantee procedures fee. The effective date of this guarantee from the contractor the date of receipt of advance payment, the expiry date specified a year than a certain day, it can also be added to advance deduction until the end, and two in the first implementation date for standards. Guarantee Banks. International engineering contracting bid contracts issued by a bank guarantee provided a way that is straight on or turn aside. Straight open a credit that is, from a leading bank to open directly to the owners, or turn on a local bank is specified by the bank or turn on to the owners. Bank guarantee issued by Chinese companies should be borne by the Bank of China, Bank of China is China most important foreign exchange specialized banks, with offices in foreign countries in the international credit good. If the direct guarantee by the Bank of China to open direct opening to the owners; if the contractor requests of the Bank of China issued bonds to the owners of the country designated bank, and then from the line out to the owners, this turn on the bonds to the two banks pay the fee and the guarantee fee. In addition, some tender or contract bond from a local bank or local registration of foreign banks out, but did not specify which bank, the contractor to choose a security conditions are not harsh, good credit, affordable, high efficiency out of a bank guarantee. Choose a local bank to obtain the consent of the owners. Guarantee extension and expiration time period of revocation. If you need to be extended after the expiry of guarantee should be almost due for renewal before. Reasons (reasons to be fully justified), a clear extension of the start and end time. Guarantee does not apply for revocation of such maturity, the risk is still borne by claims, and the Bank will continue to receive guarantee fees. Guarantee fees are usually collected at one year. Bonds in the calendar year even if only one day, the bank also guaranteed by full year revenue costs (and some banks be collected quarterly). So maturity bonds must be promptly removed. Revoked for the same procedures and application procedures (application to open out a letter or call to open, revoked the same form.) On the “first claim on demand” guarantees the corresponding measures. “First claim on demand” guarantees that the beneficiary possesses the ultimate initiative, in the claims and the amount of the guarantee period, as long as the beneficiary upon written request, the bank must unconditionally pay cash to the beneficiaries. Without having to seek the approval of the applicant. This may cause the following problems: even if the applicant fully complied with its obligations, and entitled to unreasonable claims. Therefore, this guarantee was called the “suicide” letter of guarantee. It is unilateral on the beneficiaries benefit, and very unfavorable to the applicant guarantee, acceptance should be avoided. But sometimes the tender documents have been provided for this guarantee format. If the contractor received bid is equivalent to this provision in advance, then you can take the following measures to reduce risk: the “first claim on demand” by the words to the specific content of research, as much as possible between the provisions of a written claim and payment a certain interval of time. Notify the Contractor in order to facilitate banks to make timely and direct negotiations with the beneficiaries, the two sides to resolve incidents before the payment in the bank. Contractor may be risks to the insurance company guarantees the insured. And included in the offer premium (usually used in large-scale project bidding). Contractor shall maintain regular contact with the bank and a good relationship, so that banks keep abreast of engineering progress and contractor compliance situation. If there is not a contractor default, the owner with the “first claim on demand” guarantees to banks to withdraw the case of margin, the Contractor shall report immediately to the arbitral tribunal or the court made urgent appeals, requesting the court to temporarily freeze guarantee, to prevent loss immediately. Some countries, legal provisions, in exceptional circumstances (such as beneficiary fraud), can prevent bank payment. Terrified legal liability, the majority of beneficiaries (the owners) will not have excessive claims. Strengthen the management of guarantees. Many companies contract a lot of items, bank guarantees and plentiful, but did not set bond for someone special on the management, it tends to delay time and the accident. Such as the guarantee should be extended without extension procedures are done, the beneficiary automatically lapse by taking advantage of worry for bond before the expiration of claims to the bank, resulting in losses. In practical work in order to get the project, the contractor guarantees are anxious to apply to open, open and then the extension is often easy to overlook the bond, less the amount, and revocation matters. Therefore, foreign contractors must strengthen the management of guarantees, the establishment of accounting, the undertaking by the person responsible for clean-up and daily management of the project management process and closely linked bonds in order to reduce unnecessary losses. “Seven” Delight, all in Sina new blog, come experience the ah ~ Please click to enter ~