In this video, I'll be explaining about the three most important bank guarantees used in the construction
project.
Let's start by understanding what a bank guarantees.
From the time it is clear that it is a promise being made by someone to someone else to carry out something.
Men guarantee is that promise carried out by a bank or any financial institution to pay someone on behalf
of someone else?
The party that applies for the bank guarantee is called the applicant, and the party to whom the bank
is responsible to make the payment is called the beneficiary.
In some cases, the bank made requests for collateral for issuing the bank guarantee this can be any
asset, cash, real estate or lend.
In a construction project, there are commonly three types of bank guarantees.
The performance banker, the.
The advance then can be.
And the retention ban can be no, let's understand each of them, PBG, in a construction project that's
usually requested by the claim from a contractor to carry out a contract, or it can also be requested
by the main contractor from the subcontractor or supplier for the services.
The main reason for a PBG is to ensure the satisfactory fulfillment of the services adhering to all
the terms and conditions of a contract agreement.
During the tendering stage, the tender documents and the conditions of contract will clearly outline
the requirements and formats that needs to be agreed to.
These requirements are usually the amount of the PBG, the bank details reality of the guarantee conditions
under which the beneficiary can claim the on time period for submitting the PBG and turning back the
PBG to the applicant.
Advanced bank can be.
This is also requested by Klein from contractor or by contractor Photoplay, a subcontractor.
The purpose of an advance bank guarantee is to securely cover any advance payments done.
Usually the advance payments are made for initial mobilization.
Now, this advance payment is deducted from each monthly payments, the percentage of the reduction
is usually mentioned in the contract requirements and formats of an advanced bank guarantee will be
available in the tendering stage.
Again, we the army on the validity of the bank, details the claim conditions, the time for submitting
and returning of advanced bank guarantee and the repayment conditions.
Retention ban guarantee it is similar to advance bank guarantee and performance bank guarantee in terms
of applicant and beneficiary.
The only difference is that performant, bank guarantee and advance bank can be a mandatory requirement
from the client side, but a retention bank guarantees proposed by the contractor to claim the full
retention month before taking on a stage of the project.
Retention amount as a percentage of the vote, Brennaman one which is deducted from the monthly payments.
Usually, if you consider the contract or other contract, only half of the retention among the spate
after taking out of the project by the claim, the remaining 50 percent is available or payable only
once the defect liability period is over, which is usually one or two years.
The retention bank requirements and performance will also be available in the tendering stage.
Again, similar to advance bank guarantee and the performance bank guarantee, the requirements are
similar.
Let's understand all these guarantees with a practical scenario here.
I'm assuming that the project is being completed as scheduled and the contract on which rarely happens
in the real world.
So here we are, assuming that the contract on this one million US dollars, the time for completing
this project is 365 days.
We're assuming that the project commencement date is first April 2019.
So the project needs to be completed by 30, first March two thousand twenty.
That is three sixty five days after 1st April 2019.
And that is the date in which the contract was supposed to give the taking on certificate.
We assume that the defect liability period is three sixty five days.
So the final completion of this project after the vacation and when the performance certificate is received
will be thirty first March twenty one.
Now, as for the contract, we assuming that the performance then guarantee amount should be 10 percent
of the contract, come on.
So it will be US dollars, one hundred thousand.
And the reality will be the completion of the project, the final completion of the project at the start
of March 2021.
So the client will be requesting the contractor performance gap and guarantee with these details.
Now, as per the contract, we assuming that that meant that the Klan will be paying the contract will
be 10 percent of the contract and that is one hundred thousand U.S. dollars.
So this will be played only, only once the Klan to see an advanced get and B from the contractor.
And the details that needs to be will be the advance band going to be one, which is then percentage
of the contract that is under thousand U.S. dollars.
And the reality will be the completion of the project.
That is when the taking certificate is done.
That is 31 March to 2020.
Also, it is assumed that by this time, whatever advance has been paid, his return is retained back
by the clan from the monthly payment applications.
So that is an assumption that needs to be done by the state government has not been completely written
back by the claim, then the reality of this one needs to be, again, extended.
Similarly, in the real scenario, if the project completion gets delayed, the validity of the performance
being guaranteed should also be extended.
Now.
To understand this are businessmen and relatives of and try to understand.
The stable, so if you see.
In this Colombia push each month.
In this column, there are the amounts which we have claimed in each month and each month, we are detecting
the advent and the retention as per the contract.
We are assuming that the directions for the advance, a certain percentage of the monthly payment or
monthly will Brennaman and the retention, also a certain percentage of the work done.
So if we consider each month the final payment being done after the deductions, you can see, for example,
for the first one, that will be a hundred thousand minus ten thousand minus ten thousand, that is
eighty thousand.
So that for each month you're assuming that the project is completed and then their contract.
No one has been claimed by the end of the 12 months.
So after the 12 months to see the total above the norm on this one million US dollars, which is equal
to our contract on the total deductions.
And when the election's being done this year, dollars hundred thousand, which is similar to what we
had received, the contractor received in the initial stage.
So then that advance has been.
We turn back by the claim now the total detention of one hundred thousand.
And the total payment that was received by the contractor is eight hundred thousand plus, the initial
is a hundred thousand.
So the payment of the bill now will be nine hundred thousand.
The remaining payment of a hundred thousand is a retention number.
And usually contracts like 50 and other contracts or 50 percent of the retention amount can be claimed
by the contractor once the completion of the project takes place.
That is one to take a certificate as receive.
So only half of the detention of more than 60 can be claimed during this date that the start of this
March 2020 and the remaining 50000 can be claimed remaining 50 percent can be plane only after the Labor
Day period that the contractor has to wait till 30 percent 2021.
So at this point, the certain ban can be.
Plays the role.
So if the contractor wants to get the details, then immediately during the completion of the project
and doesn't want to wait till another one year so that they can provide a retention bank guarantee to
the plan with the amount that the remaining amount, that will be the amount mentioned and again, guarantee.
And the reality will be the time till the reflection, the completion is completed.
That is thirty two thousand twenty one.
Again, if this defect equivocation gets extended, this reality will also get extended.
So the stablest clear.