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Performance Guarantee

Normally issued for an amount equal to between 5 and 10 percent of the contact value, this guarantee assures payment to the employer in the event that the contractor fails to fulfil contract obligations.

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Advance Payment Guarantee

This enables the employer to get a refund of advance payments made in the event of default by the contractor.

It is issued for the full amount of the advance payment, but may contain reduction clauses, which enable a reduction in the maximum amount upon evidence of progressive performance.

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Retention Money Guarantee

Most major projects call for stage payments as work progresses. Often the employer retains a percentage of the payment (retention money), as cover for any hidden defects in the completed work.

A retention money guarantee allows for immediate release of retention money to the contractor. The employer can get a refund of retention money released, in the event of default by the contractor.

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Payment Guarantee

This is used as security for payment obligations. It is also issued as a Standby Letter of Credit.

It is usually a method of securing trade related payments.

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How it works

  • Guarantees are used to back up performance by an importer or a contractor.
  • There are many types of guarantees that fulfil different functions.
  • These are high risk instruments for the applicant as payment takes places on pure demand and no proof of default is required.
  • You should have total trust that the beneficiary will not make abusive demands.
  • If you are the beneficiary, then the only risk you have is the ability of the issuing bank to pay, and if it is a cross-border guarantee, also the country risk of the issuing bank.
  • If you are the beneficiary you may negotiate to ensure that FNB Botswana re-issues the guarantee at the request of the foreign bank in your favour.

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What it costs

  • The main cost under a guarantee is the establishment fee, usually a half-yearly percentage risk fee based on the risk profile of the applicant which is usually charged in advance.
  • It is standard international practice for the applicant party to pay all the cost. So if another cross-border bank is involved, then the applicant party also pays the other bank cost.
  • If your business does not already enjoy credit facilities with the bank, you need to approach your Relationship Manager for a limit to be marked. You also need to complete an application form and provide the proposed wording of the guarantee to the bank for approval.
  • If it is the first time that you want to issue a guarantee, you need to complete a General Indemnity for Guarantees; this indemnity will cover all guarantees to be issued by the bank on behalf of your business.
  • The laws that apply to a guarantee can be a very complex factor. Usually all guarantees issued in Botswana will be subject to Botswana law. If it is a crossborder guarantee and another bank is involved, then the laws of Botswana will apply to the counter-guarantee and the laws of the foreign country to the primary guarantee.
  • Guarantees are often governed by the International Chamber of Commerce publication URDG 758.

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Tender Guarantee (also called Bid Bond)

This is issued to companies which are bidding / tendering for work.

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Payment Guarantees

Performance Guarantee
Advance Payment Guarantee
Retention Money Guarantee
Payment Guarantee

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Facility Guarantee

This is normally not trade related. Its purpose is to provide security to another bank to advance money to an individual or company.

It is often used when a company does not have any credit record and wishes to expand offshore.

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Maintenance Guarantee

This ensures that the contactor does not abandon the contract after completion of the construction phase, but continues to honour any maintenance obligations as per the original agreement.

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Customs Guarantee

Contractors often need to import equipment temporarily to carry out a contract.

Import duty would normally be payable, but the customs authorities will grant exemption if the contractor undertakes to re-export the equipment on completion of the contract.

The contractor then has to provide the customs authority with this guarantee, which prevents the contractor from selling the goods instead of reexporting them.

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Shipping Guarantee

This enables the buyer to obtain release of the goods from the carrier, despite the bills of lading being lost or delayed.

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Qualifying criteria

  1. If you are the applicant party, your business would need a credit facility with the bank
  2. The beneficiary of a guarantee requires no credit limit

Guarantees

Guarantees are usually written undertakings by FNB Botswana to pay an agreed amount to a third party if you default on the terms of your contract with that party.

What this is

A written undertaking

Guarantees provide security for performance and reduce risk.

They are written undertakings by the bank to pay an agreed amount to a third party if you default on the terms of your contract with that party.

How it works

  • Guarantees are used to back up performance by an importer or a contractor.
  • There are many types of guarantees that fulfil different functions.

What it costs

Know what to expect

  • The main cost under a guarantee is the establishment fee, usually a half-yearly percentage risk fee based on the risk profile of the applicant which is usually charged in advance.

Types of Guarantees

Tender Guarantee
Payment Guarantees
Facility Guarantee
Maintenance Guarantee
Customs Guarantee
Shipping Guarantee

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Qualifying criteria

First National Bank of Botswana Limited - Registration number BW00000790476.