Liga Asuransi – Dear readers, how are you? This time we will discuss the issue of Bank Guarantees or Surety Bonds that need to be provided by every contractor or supplier company related to the project owners’ the government or private corporations.
As we all know that in line with the current economic conditions Indonesia is still facing severe challenges, the impact of global economic conditions is experiencing turbulence due to the COVID-19 outbreak which is then also followed by Ukraine vs Russia conflict which does not know when it will end.
As a result of the economic turmoil, there was also a significant increase in financial risks which caused losses due to financial failures that caused large amounts of losses experienced by financial institutions and by the public.
This problem also occurs in the field of guarantees which include bank guarantees and surety bonds. Many failures in project completion and procurement of goods failed and eventually, their project guarantees were disbursed by the guaranteed holders (oblige).
As a result, many underwriting companies, especially insurance companies, are currently experiencing liquidity problems.
Now the parties involved in the financial sector including banking and insurance are very careful and selective in providing guarantees. They conducted a more complete, rigorous evaluation, and asked more detailed questions to ensure that the project would be implementable according to the plan and their potential risk is low.
As an insurance broker and consultant with extensive experience in the field of providing guarantees both surety bonds, bank guarantees, and counter bank guarantees we see how difficult it is today to process the issuance of guarantees compared to previous times.
Here we would like to write down some tips so that the process of issuing your guarantee runs smoothly as expected.
If you are interested in this article, please share it with your colleagues so that they also understand you.
Things that Need to Be Considered for Parties guaranteed by the Bank Guarantee (Principal)
- Carefully study the guaranteed terms in the contract.
Although every contract always requires a bank guarantee, the details are not the same for each contract. In order not to be mistaken, you should read and find out what the requirements are being asked for. Things that need to be considered are:
- What is the amount of the requested collateral value?
- Who can issue a bank or insurance? If only by banks with such qualifications, there are those who can be used.
- When should the bank guarantee be submitted?
- Are there any special requirements for surety wordings?
- Calculate the costs that you must pay to issue a bank guarantee.
The issuance fee differs between Bank Guarantee, Surety Bond, and Counter Bank Guarantee. Bank guarantees require bank provision fees and others and there need to be your funds held by the bank.
Surety Bond is issued by an insurance company and the cost is relatively lower. In a combined bank guarantee contract from the insurance company and the bank, the cost is there is a bank provision and insurance premiums, but the funds held by the bank are less.
Always use the services of an official Insurance Broker company
To arrange Surety Bonds and Counter Bank Guarantee the process is not easy because you will be in contact with insurance companies and banks at the same time. You need help from an insurance expert who has access to several insurance companies and banks that can combine the two financial institutions.
It is the insurance broker who will help you to compile the data and present your company and project so that it is worthy of acceptance by the insurance company and the bank.
You need to know that not all insurance consulting companies that offer surety bond management services and bank guarantee contracts are official insurance brokerage companies registered with the Financial Services Authority (OJK).
You need to use the services of an official insurance broker because, first you will get a “guarantee” that they are indeed experts recognized by the OJK, secondly you get a Professional Indemnity (PI) insurance guarantee to protect you if the insurance broker makes mistakes and omissions that harm you.
Therefore, you need to ensure that each insurance broker company that you use is already registered with the OJK in the following ways:
- Check at the OJK website by writing the official name of the company
- Request that’s company registration number at the OJK
- Ask for a copy of the Company’s Professional Indemnity (PI) insurance policy as proof that you are covered.
- If you are asked by the project owner to submit a guarantee, then it’s fair if you also need to request a guarantee from the insurance broker that you use.
Make sure once you receive a tender invitation or are declared a project winner immediately contact your insurance broker so that they immediately process the guarantee you need before the deadline is missed. For further explanation, see the bottom of this paper.
Things that Must Be Considered by Surety Bond recipients or Bank Guarantees (Oblige)
- Ensure the authenticity and validity of the bank guarantee
Ensure the authenticity and validity of the bank guarantee by contacting the issuing bank. To avoid things that can hinder the smooth running of your transaction, it is necessary to pay attention to the following points.
For guaranteed applications, the application for the issuance of a Bank Guarantee must be submitted directly to the Bank that will issue the Bank Guarantee.
For the Beneficiary, it is recommended to confirm for each Bank Guarantee received. Confirmation can be done by submitting a request in writing by attaching a copy of the Bank Guarantee received.
- Check the validity period of the bank guarantee according to the term of the project.
Please note that the bank guarantee expires if: first, the return of the original bank guarantee, secondly when the deadline for the expiration date of the bank guarantee claim period has been exceeded without any claim from the recipient of the bank guarantee. All three are issued statements from the beneficiaries of the bank guarantee about the waiver of the right of claim to the bank guarantee in question.
When can the Bank Guarantee and Surety Bond be disbursed?
According to article 67 paragraph (3) of Presidential Regulation 54/2010, guarantees for the procurement of goods/services must be disbursed unconditionally in the amount of the collateral value within no later than 14 (fourteen) working days.
According to this Presidential Regulation, the procurement of goods/services guarantees provided by providers of goods/services must indeed be unconditional.
Bank guarantee agreement with clause “without the need for proof to the BANK regarding the existence of defects or deficiencies or failures in the maintenance of work on the part of the SERVICE PROVIDER”. This means that, in the event of disbursement of the Bank Guarantee, the holder of the Bank Guarantee does not need to prove to the Bank that there is really a defect or deficiency in the fulfillment of the service provider’s obligations. So
The Bank does not deal with the true/not of oblige claims as a Bank Guarantee holder.
The guarantee can be issued by a Commercial Bank, Guarantee Company, or Insurance Company. The guarantee issued by commercial banks is in the form of a bank guarantee, while the guarantee issued by the insurance company and the guaranteed company is in the form of a surety bond.
A Guarantee Company that can issue a surety bond is a Guarantee Company that has a license from the Minister of Finance and for Insurance Companies, a Guarantee Issuer is a General Insurance Company that has a license to sell suretyship products as stipulated by the Minister of Finance.
It should be noted that the definition of a surety bond is a 3 (three) party agreement between the Surety (Insurance) and the Principal (Contractor) to guarantee the interests of the Obligee (Project Owner), where if the Principal fails to carry out his obligations as promised with the Obligee, then the surety will be responsible for the Obligee to settle the Principal’s obligations.
How to Avoid Problems in the Implementation Guarantee?
Because the function of bank guarantee and the surety bond is very important in a construction work transaction where if the implementation guarantee provided is not as requested, it will result in the contract being canceled.
Therefore, you need to be careful from the very beginning of the process of issuing the Implementation Guarantee. When you need a Bank Guarantee or Surety Bond contact the insurance brokerage company that is officially registered with the Financial Services Authority (OJK).
Frankly, lately many companies claim to be like insurance brokers who offer Implementation Guarantees and guarantee insurance, but these companies are not registered with the OJK.
To prove it, please check the name of the company at this link. on the website of the Association of Insurance Brokerage Companies and Indonesian Reinsurance Brokers (APPARINDO) or on the website of the Financial Services Authority (OJK). If the name of such a company does not exist, then they are not an official insurance brokerage company.
What are the risks if you do not use the services of an insurance brokerage company that is officially registered with the OJK?
- You cannot get services from official insurance experts who have a certificate of expertise recognized by the OJK and the National Professional Certification Agency of the Ministry of Manpower (BNSP)
- When the illegal broker makes a mistake then you don’t get insurance protection. Meanwhile, an official insurance brokerage company is required to have Professional Liability insurance that will protect you as a customer if something goes wrong with the insurance broker.
- You do not get certainty of reimbursement in the event of a dispute with an illegal insurance broker because there is no certainty about its financial satisfaction. Meanwhile, authorized insurance brokers have a mandatory paid-up capital of Rp. 3 billion which at any time is ready to be disbursed if they fail to run their business.
- The official insurance broker is closely monitored by the OJK, at least once every 4 months must submit an official report on the condition of the company.
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