Advance payment bank guarantee

[duncan drennan]

We're busy negotiating a contract, and the client has come back with a request for an advance payment bank guarantee. My understanding of this is that if we default in the contract in some way then they can request that the advance payment they have made is refunded.

Who provides this guarantee and what is the mechanism? I assume that the bank commits to refund the monies based on some agreement, and that the bank handles the refund. But who exactly has the power over when the bank refunds that money? Can the client cry "default!" and the bank will just hand over the money? What options will we have to defend our position?

I would insist that the guarantee includes a reduction of any payments for direct costs which have been made.

[duncan drennan]

FNB has some info on guarantees (in this case international ones which are relevant to me), there is also a page relating to local guarantees.

I don't like the fact that there is no proof required, just a demand, then they pay the money over. It is a bit one a one-sided arrangement. Also, I would need to apply for a credit facility which I don't need.

Seems we'll need to negotiate this a bit differently.

[flaker]

It would appear that you may require an independent 3rd party (like an arbitrator) qualified in your type of business, agreed by both parties, that, should there be a dispute then he comes in & decides the outcome, be it a full/partial refund or none etc. his decision should be final and binding on both yourself & client.