What Is the Purpose of a Parent Company Guarantee

The parent company`s warranties vary widely, but generally include satisfying the employer`s claim for damages, performing the contractor`s obligations instead of the contractor himself, or compensating the employer for losses incurred as a result of the contractor`s non-performance. However, the reality is that the guarantee (unless it is on demand) often includes a requirement (as is the case with the guarantee guarantee issued by the Association of British Insurers) that the damage must be determined and established in accordance with the construction contract. This will likely require formal proceedings against the contractor before the amounts can be recovered from the guarantor. As a result, amounts may not be available until a much later date and the employer may be disbursed for a period of time. Changes to the Underlying Contract – It is important that changes to the construction contract do not affect or reduce the guarantor`s liability under the warranty. As with all contracts, the scope and application of each warranty offers considerable flexibility. In the construction industry, warranties are generally understood to cover losses in the event of a defect or breach by the contractor. But this raises the question of what failures lead to a contractor`s failure, and will it still trigger a justification for using the PCG? For example, in accordance with section 8.4 JCT Design and Build 2016, the employer may notify the Contractor of a notice of default, and if the Contractor continues the period for 14 days from receipt of the notice, the Employer may give another termination of the Contract within 21 days of the expiry of the 14-day period. So when is the guarantor responsible for the contractor`s delay? Is it when the delay occurs, after receiving the employer`s notice of dismissal, after the expiry of the 14-day period or after the employer has received notice of dismissal? The answer to this question will only be clear if the position is agreed and set out in the provisions of the GCP.

One of the benefits of a performance guarantee is that it provides the employer with a sum of money from an independent third party that can help manage short-term losses incurred by finding a replacement contractor. Collateral is a contract and must therefore contain all the necessary elements of a contract – namely the offer, acceptance, consideration and intention to establish legal relationships. In a construction scenario, the parent company`s guarantor will rarely be entitled to a direct payment or benefit from the construction contract, so there is a valid argument that a parent company cannot accommodate a guarantee it offers. To overcome this difficulty, make sure that a PCG is performed as an act because, unlike simple contracts, the acts do not require the exchange of consideration to be enforceable. Whether the employer requires a performance guarantee or a maternity guarantee (or both) must be assessed on a project basis, taking into account the nature and value of the work and the financial capacity of the contractor. However, the starting point should be that these are completely separate forms of security. A parent company guarantee is a promise that a company will meet the performance requirement that its customers expect. These come into play when a contractor or subsidiary enters into a contract with customers.

The expectations set out in this guarantee are described in detail by the parent company. The document describing a guarantee of the parent company should make it clear that the liability of the parent company will only be incurred if the contractor or subsidiary is in breach of the contract and does not remedy the infringement in question. Parent company guarantees can be particularly useful when a small entrepreneur is part of a large financially stable group of companies. The guarantee is given by the parent company to the customer, and in the event that the entrepreneur does not fulfill its obligations, the parent company is obliged to remedy the breach by fulfilling all the obligations of the entrepreneur under the contract (and / or covering the losses and costs incurred by the customer). The company/organization issuing the PCG must have the necessary capacity to offer the guarantee, otherwise the provisions of the contract will not come into force and the guarantee will be void and unenforceable. Whether an organization is in a position to provide security depends on the terms of its constitution. For most limited liability companies, the provision of guarantees will be sufficiently subordinated to their main purpose, so that the question of capacity will not arise. However, it`s still worth checking an organization`s bylaws, especially if you think that providing a guarantee isn`t one of the fundamental goals of that organization. .