Court Bonds

Construction Guarantees / Bonds

The following Construction Guarantees are available in the African market

• Advance Payment Guarantees and Materials of Site Guarantees
• Performance Guarantees
• Retention Guarantees
• Bid Bonds Guarantees

Advance Payment Guarantee/Bond

Some contracts make provision for Employers/Principals to pre-finance a contractor by making payments before the commencement of the contract. The Employer/Principal secures such a risk by requiring an advance payment guarantee/bond in return. Usually, the guaranteed amount will decrease in accordance with the percentage of the work certified. The guarantee/bond will be equal to the pre-financed amount - usually 30%.

Bid Bonds

This bond is required when submitting a tender and secures the employer from the premature withdrawal of a tender and to if the appointed contractor is unable to fulfill its contract award conditions.

Performance Guarantee

This is most probably the most common form of guarantee, which protects the Employer/Principal against the risk of the contractor failing to comply with the conditions of the contract. Traditionally, the guarantee amount is equal to 10% of the contract sum. However, recently the new format JBCC "fixed" (7.5%) guarantee or "variable" (12.5% reducing to 2%) guarantee was introduced, of which the latter version includes a retention provision.

Retention Guarantee / Bond

The bonds effectively replace the actual retention fund. Most contracts make an allowance for the Employer/Principal to retain a percentage of the funds payable to the contractor during the construction period as a form of security against default or defective work. A portion of the funds retained is paid out at the end of the construction period and the balance at the end of the maintenance (defects liability) period. Funds released with a guarantee/bond significantly enhance working capital.

Renewable Energy

"South Africa has identified electricity as being a possible hinge on growth due to the increasing demand. With the high level of renewable energy potential, a target of 10 000 GWh with 3 725 to be generated from renewable energy sources has been set as the new target to ensure that electricity demands are met with, which is in accordance with the capacity allocated to renewable energy generation in IRP 2010-2030. The Department of Energy has established the Renewable Energy Independent Power Procurement Programme ("REIPPPP") that has been designed so as to contribute towards the target of 3725 MW and towards social-economic and environmentally sustainable growth, and to start and stimulate the renewable industry in South Africa." In keeping with the GM Financial Services culture of solutioning our clients, relationships have been created with guarantors in the market to provide insurance backed capacity with a total guarantee capacity in excess of R 1.5 billion per project. Bid Bonds, preferred Bid Bonds, as well as the performance, retention guarantees and advance payment guarantees form part of the suite of products offered.

Mining Guarantees

In terms of the National Environment Management Act (NEMA) and Mineral and Petroleum Resources Act (2002), the Department of Mineral Resources (DMR) requires that an annual calculation of the closure liability of a mine be performed. This calculation should determine the liability at closure taking into account the financial liability:

• As planned in terms of the Environmental Management Programme (EMPr)
• Or should there be a premature unplanned closure.

The Act allows for methods for which this liability can be funded, these are as follows:

• Section 10 (1) cH Trust- more recently an S37A trust
• Guarantees
• Cash
• Other

• The funded amount must be equal to the maximum of the ongoing, premature closure or final closure rehabilitation cost of the mine. Furthermore, the full value of the fund must be provided at the inception of the mine.

  We are able to assist mine owners with providing the DMR with Guarantees in lieu of cash or putting money away in a trust for the fulfilment of the rehabilitation liability.

  Advantages

  • Even though the DMR requires a guarantee for the full value of the financial liability, the mine builds up the amount over a period of time through structured payment options and investment.
  • There would be no over funding.
  • Provide a potential access to surplus funds.
  • Tax benefit on the structured payments.
  • Very competitive costing structure.

NHBRC Guarantee

Late Enrolment and Sectional Title Guarantees

Late enrolment occurs when a registered home builder has not complied with the rules of the NHBRC to enrol the house fifteen days prior to the commencement of the construction. Late enrolment of a house imposes a considerable risk for the NHBRC in that a late inspection of such a unit may not identify underlying structural defects. The Council (NHBRC) may request any surety, guarantee, indemnity or other security considered reasonably by the Council to satisfy its obligations under section 16 (1) of the Housing Consumer Protection Measures Act No. 95 of 1998 before issuing the enrolment certificate. Through our panel of insurers, we are able to provide both Sectional Title and Late Enrolment Guarantees to various of our clients with tailor-made products in this category ensuring peace of mind knowing that everything is taken care of.

Sectional title enrolment guarantees

For sectional title developments, a builder/developer must pay certain fees to the NHBRC as provided in the rules of the NHBRC for the sectional title developments or phased sectional title developments. In the case of Sectional Title phased Developments, the developer must pay 20% of the estimated enrolment fee upfront. The balance of payment (approximately 80%) is payable on the opening of the sectional title register. The insurance company can issue a sectional title enrolment guarantee to the NHBRC to guarantee the payment of the fees

Trade Guarantees

Trade guarantees are a pure financial obligation. The following type of trade guarantees are the most common in South Africa.

• Fuel Guarantees
• Customs Bonds
• Educational Guarantees
• Logistic Guarantees
• Utility Guarantees

Fuel Guarantees

• In these uncertain economic times, Fuel Majors are increasingly requesting Guarantees to secure Credit Facilities for the purchase of fuel, Fuel Guarantees are issued to Fuel Majors guaranteeing the payment obligation on a credit account for clients.
• Our team is able to assist commercial fuel suppliers/bulk fuel wholesalers and retail fuel outlets/forecourts with guarantees required in respect of fuel, gas, lubricants and other fuel related by-products such as bitumen products.
• Fuel Guarantees are offered as security for a credit line given by the supplier of fuel. The guarantee states that if the client (buyer) is unable to pay the supplier (seller) on the terms agreed by the two parties, the supplier can claim such payment against the guarantee. This Guarantee could cover the purchasing of fuel.
• Retailers such as service stations have to provide fuel wholesalers with a fuel guarantee to enable the service station to trade on a debit order payment system. If a Fuel Guarantee is not provided to the Fuel Company, the Retailer would have to pay the supplier upfront when placing an order for fuel or supply the Fuel Company with a Bank Guarantee. The latter would have a negative effect on the Retailer’s cash flow and operational ability. With a Fuel Guarantee in place, Retailers are able to manage their cash flow more efficiently.

Customs Guarantees

• A Customs Surety Bond is a contract used for guaranteeing that a specific obligation will be fulfilled between Customs (SARS) and an importer for any given import transaction, It insures SARS against non-payment. The main purpose of a customs bond is to guarantee the payment of import duties and taxes by the importer to SARS.
• Customs Guarantees are generally guarantees issued for Deferred Duty & VAT, Bonded Warehouse, Temporary Import, Customs Rebate and manufacturer of an excisable product.

Education Guarantees

Education Guarantees are a requirement with every registration of a new Private Further Education and Training Institution (FETs) with the Department of Higher Education and Training. These guarantees are in line with the requirements of the Further Education and Training Colleges Act 2006 (Act No.16 of 2006) and the Regulations for the Registration of Private Further Education and Training Institutions.

We are able to provide our clients with sound, expert advice on multiple quotations with the most competitive rates in the country backed by the South Africa’s top insurers.

This guarantee is issued by the insurance company to private institutions to ensure that their contractual obligations will be fulfilled. The beneficiary of the guarantee (students) will have financial protection against loss in the event that the institution is unable to offer its tuition services as a result of closure.

Students benefit in that they will get a placement with another institution to complete the course or also they get reimbursement of the fees paid for the tuition or course. The guarantees are also only issued for accredited courses.

Logistics Guarantees

Logistics Guarantees are offered as security to Logistics Suppliers such as Transnet, Freight Rail (TFR), Portnet in line with their policy. The guarantee usually states that if the client does not adhere to the terms as laid out by the beneficiary of the guarantee, the beneficiary can claim such payment against the guarantee.

Utility Guarantees

Parastatals such as Eskom, Water Boards and other entities such as municipalities and other local authorities usually require large upfront cash deposits for them to provide large consumers with the connection of their services such as water connections and electricity connections. This Guarantee would be put in place to protect the service provider against non-payment or default by the consumer for the services rendered.

With a utility Guarantee in place, there are no upfront cash deposits needed which will enable you to have enough cash flow to focus on other operational aspects of your business.