Insurance Surety Bonds are a great tool to provide financial guarantees for bid securities, performance guarantees, advance payment guarantees and retention guarantees in India. We discuss in depth about them and their advantages over Bank Guarantees through a recently awarded project by Energy Efficiency Services Limited (EESL) under PM Kususm Yojna for Manufacturing, Supply, Commissioning and Maintenance of Solar Pumpsets.
Design, Manufacture, Supply, Transport, Installation, Testing and Commissioning of Off Grid Solar Photovoltaic Water Pumping Systems of 1-10 HP in selected States on PAN India basis, including complete system warranty and its repair and maintenance for 5 Years under MNRE KUSUM scheme
PRINCIPAL ORGANIZATION AND PROJECT REFERENCE
FINANCIAL GUARANTEE DETAILS
BANK GUARANTEE (BY BANKS) VS INSURANCE SURETY BOND TECHNOLOGY (BY SURETY 007)
Bank Guarantees are a costly affair and are typically required in design, supply, manufacturing, 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 Bond|
|Cost (in % p.a.)||1-2%||1-3% (Retention Bond)|
|Collateral or Margin Money||Required between 50-100%||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 1-5 days to issue|
CHOOSING INSURANCE SURETY BONDS FOR BID, PERFORMANCE OR PAYMENT GUARANTEE
The above comparison between the projects makes it abundantly clear for design, supply, manufacturing companies, who have been contracted by NHAI 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 Technology companies (like Surety 007) 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 EESL project EESL/06/2020-21/KUSUM/SWPS/1-10 to avail free Insurance Surety Bonds consultation from Surety 007. Reach out to us on firstname.lastname@example.org OR call us at +919911557724.