IACCM Contract Management Forum

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2016-11-01 10:03:24

Advance Bank Guarantee

For receiving the advance payment, Client asked for BG and Contractor gives the same keeping the validity till delivery date (as XX-MM-YYYY) and received the amount.
Due to the Changes, the delivery date got changed and the Client is asking the Contractor for renewed BG. But the Contract Agreement do not have any provision for providing renewed BG after expiry of the same.

Hope many have came across such situation. Request for advise on this. I'm from Contractor side
 •   2016-11-01 11:55:57
It is quite usual and normally is complied with. However one has to see the origin of delay or shift in delivery date as it could provide the basis for argument which ultimately will determine such an extension is mandatory or not irrespective of contract provision.
To counter such situations sometime the guarantee texts states bond shall be valid until (date) or until advance is fully adjusted against the claimed payments.
In such a situation you may not be having any specific provision in the contract but extension validity becomes a necessity.
 •   2016-11-01 16:14:07
Do you not want to provide the extended BG at all, or are you happy to provide if the Client pays for it?
 •  Schlumberger India  •   2016-11-02 03:18:18
Thanks for the useful reply.

To answer this
"Do you not want to provide the extended BG at all, or are you happy to provide if the Client pays for it?"

Firstly we do not want to provide extended BG. The Client have already paid the advance while we gave the BG during start of the project.
 •  Schneider Electric  •   2016-11-03 09:04:10
I do not know if I can help you. It is very common in the usual practice and I very used to submit a new BG or even simply extend the validity.
Even if you do not have any provision for providing renewed BG, do you have any provision regarding the validity of the BG, for example, that the BG shall be valid until the delivery.
I think it is common sense and the Client has the right to ask for the extension.
 •  Whirlpool  •   2016-11-07 16:08:14
If everyone was in agreement up front to provide the guarantee, I see no reason it should not be provided given a delay, unless that delay is the fault of the requester of the contract. I would consider refusal to renew the BG to not be a good faith move on the part of the other party, and while I may or may not have leverage on this contract, you can bet I will on the next one. It will likely have a lasting adverse affect on the business relationship.
 •  IACCM  •   2016-11-08 16:54:30
I think the comments above are a good reflection of the items you should be considering:
- how clear was the original intent to align delivery and BG dates?
- who initiated the changes that led to delays? Were these delays agreed collaboratively?
- do you have any reason to question the good faith of the client or that they might seek to abuse the BG?
- are you concerned about your own performance and fearful you will miss the delivery date?
- do you expect / want to further business from this client? Does it make business sense to fight the client on this issue ?
Replies: 6
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