BUSINESS AND TRAINING |
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BUSINESS AND TRAINING |
19 |
The Employer can claim against this Guarantee should the Contractor not have responded to a notice of breach of contract by not progressing the works or remedying a specified defect . The Guarantor makes payment up to a maximum of the guaranteed amount . If the Guarantor is a bank or similar institution any money not expended against claims is refunded at the end of contract , less expenses .
If the Guarantor is an insurer , the restitution costs must be submitted for payment not exceeding the guaranteed ( insured ) amount . As the applicant has not “ invested ” in the Guarantee he is not due any refund at the end of contract .
The decision to follow the Retention option or the Bank v the Insurer option depends on the complexity and location of the project , the Employer and the Contractor ’ s financial standing , the business environment , and the risk appetite of the Parties at the time the project is to be executed , there is no right or wrong solution – only a unique solution appropriate to that project .
The parties to a contract must understand the administrative and legal implications of such Securities . Regardless of the Guarantee , the cost of projects ( Contract Value ) and the time to execute the works changes . This information must be shared promptly with the Guarantor as the risk exposure of the parties ’ changes and almost certainly will no longer provide appropriate compensation in the event of a claim .
The wording and obligations of the respective parties have developed over many years to manage the risk should either party default . This has developed into a specialised aspect of international and local law . The problem arises , not infrequently , where a demand is made in terms of a Security and the other Party seeks to prevent payment of the amount claimed usually based on non-compliance with the wording of a Standard-form Security .
Not unlike a Security for Performance is a Security for Payment issued by the Employer in favour of the Contractor - applicable if the Employer defaults on contractual payments . The Employer is primarily at risk at the start of a project , and then around Practical Completion that the project may be delayed , and that workmanship may be unacceptable . The Contractor ’ s risk is around Practical Completion when the value of one or two Payment Certificates may be 25 to 35 % of the Contract Sum are not paid by the due date will result in a severe cash flow crisis , even liquidation if not resolved speedily . PA
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November 2022 Volume 28 I Number 9 www . plumbingafrica . co . za