Insurance Surety Bonds are a great tool to provide financial guarantees for bid securities, performance guarantees, advance payment guarantees and maintenance/retention guarantees in India. We discuss in depth about them and their advantages over Bank Guarantees through a recently awarded project by National Highway Authority of India.
6Lane AC Highway from Ranipur Barsi Saharanpur dist to Adhoya Musalmana Ambala dist Shamli Ambala sec of Bareilly Ludhiana EC on EPC under BMP Ph-1 in Haryana
PRINCIPAL ORGANIZATION AND PROJECT REFERENCE
1 Apco Infratech Pvt. Ltd. – 785 L1
2 Constructora San Jose S.A. – 799.39
3 GR Infraprojects Ltd. – 896.87
4 KRISHNA CONSTELLATION- 828
5 MG Contractors- 931.82
6 MCL- 905.04
7 Niyati ENGINEERS AND CONSULTANTS- 911.71
8 PNC- 990
FINANCIAL GUARANTEE DETAILS
BANK GUARANTEE (BY BANKS) VS INSURANCE SURETY BOND
Bank Guarantees are a costly affair and are typically required in infrastructure, manufacturing, supply, and trade projects to furnish a financial guarantee. These guarantees are provided for Bid Security, Performance Guarantee, Payment Guarantee and Retention/Maintenance Guarantee.
Insurance Surety Bonds are an alternative to Bank guarantees and are issued by insurance companies. Surety Bonds have been allowed in India by the Hon. Minister of Finance, Mrs. Nirmala Sitharaman, in the union budget session of 2022. We provide a comparative analysis of taking Bank Guarantees and Surety Bonds for the above mentioned project.
|Bank Guarantee||Insurance Surety Bonds|
|Cost (in % p.a.)||1-2%||1.25-3%|
|Collateral or Margin Money||Required between 30-100%||Not required (0%)|
|Working Capital||Blocked due to margin money requirements||Unblocked due to no requirements of margin money|
|Line of Credit||Blocked by bank up to the amount of BG||Issued by Insurance company. So no blocking of Line of Credit|
|Time Spent||Takes 15-30 days to issue||Takes 1-3 days to issue|
CHOOSING INSURANCE SURETY BONDS FOR BID, PERFORMANCE OR PAYMENT GUARANTEE
The above comparison between the projects makes it abundantly clear for infrastructure companies, who have been contracted by MoRTH for the above mentioned project, that Insurance Surety Bonds are the clear way forward for providing financial guarantees. A contractor will receive the following benefits with Insurance Surety Bonds:
- Increased Working Capital to deliver better quality work
- Enhanced availability of Line of Credit and better utilization of Line of Credit to take up more projects
- Improved turn around time as Digital first Surety Bond companies provide Surety Bonds as compared to traditional banking system which has long waiting periods.
Surety 007 is providing free consultation on Surety Bonds to all companies that are building the infrastructure for Bharat . We invite contractors for the this MoRTH projec to avail Insurance Surety Bonds from Surety 007. Reach out to us on firstname.lastname@example.org OR call us at +919911557724.