|
These forms of Security or Indemnity are aimed at providing Principals, Financiers, Project Owners and other Employers and Buyers with financial recourse should the Contractor/Supplier or Counter-Party fail to perform their duties in terms of the contracts entered into. This could arise out of default for many reasons.
The appropriate amount of the security provided is an essential element of the financial risk management process as is the "wording" of the Security and the financial strength of the underwriter.
The usual amount of the security is 10% of the Contract Value but this
needs to be considered against all the factors that could influence
performance and the financial and other consequences of
non-performance.
The security is usually issued by a bank or other institution, such as as
insurance company. In some instances, "Parental Guarantees" are
sufficient to satisfy the contractual requirements.
AAUM has extensive experience in the arranging and sourcing of these forms of Security and will undertake a thorough financial impact analysis of the consequences of default by a Contractor or Supplier and advise on appropriate amounts of security required and contract wordings.
These forms of Security are utilised to the greatest extent in the Construction and Engineering industry.
However they are also utilised for contracts such as :
- Supply and Off-take Agreements
- Purchase Agreements
- Advance Financing Agreements
- ASGISA penalties
- Custom dues
|
