Prepared by Saad AL-Khaldi PMU

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Presentation transcript:

Prepared by Saad AL-Khaldi PMU LETTER OF GUARANTEES Prepared by Saad AL-Khaldi PMU

Guarantees Introduction. Types of Guarantees. Contractual Guarantees. Credit Guarantee. Summary.

Introduction to Guarantees (LGs) Letter of Guarantee: An undertaking issued by a lending institution ensuring that the liabilities of a debtor will be met. In other words, if the debtor fails to settle a debt, the bank will cover it. LG Contractual Guarantees Credit Guarantees

Types of Contractual Guarantees (Bonds) Bid Bond. Advance Payment Bonds. Performance Bonds. Retention Bonds.

Types of Contractual Guarantees (Bonds) Bid Bond: This type of guarantee is required at the start of a project. If a company participates in such a tender, it must submit a bid bond together with its offer. The purpose of this guarantee is to ensure a serious bidders. The required amount of this guarantee is normally representing 1% of the project’s value.

Types of Contractual Guarantees (Bonds) Advance Payment Bond: This Guarantee is issued to secure down Payment. The amount of guarantee is reduced gradually through progress payments.

Types of Contractual Guarantees (Bonds) Performance Bond: This Type of guarantee is issued to ensure the quality of works during the execution of the contract. The amount of this guarantee usually represents 5% of the project’s value

Types of Contractual Guarantees (Bonds) Retention Bond: This type of guarantee is treated as a warrantee upon completion of the project. Normally it is replaced with the performance bond

Credit Guarantees Payment Guarantee. For Suppliers Bank Guarantee. For Overseas Investors

Summary A bank guarantee may be defined as the irrevocable obligation of a bank to pay a sum of money in the event of non-performance/default of an undertaking by a third party on whose behalf the bank has issued the guarantee. LGs continue to play a critical role in facilitating business today. For any manufacturing or contracting company entering the market, Letter of guarantee is an important payment mechanism which helps eliminate certain risks.

Thank You