Liga Asuransi – Great readership, how are you? This time we will discuss more about Performance Bonds or Performance Guarantees or often abbreviated as Jampel.
In the construction industry, Jampel has become an important requirement. Almost every work contract between the work owner (owner) and the project implementer (contractor) requires the existence of JAMPEL which must be given by the contractor to the owner before work begins.
Performance Bond or Performance Guarantee (Jampel) is a guarantee issued to one party in an agreement as a guarantee for the failure of the other party to fulfill the obligations specified in the contract.
Performance Guarantees are usually provided by banks or insurance companies to ensure that the contractor can complete the project appointed by the project owner.
The Project Owner will usually ask the Contractor as the executor of the project to provide a Performance Guarantee to convince the buyer if the commodity sold is not delivered.
The owner or investor asks the developer to ensure that the contractor or project manager has a Performance Guarantee, to ensure that the investment value for the project will not be lost in the event of an unforeseen negative event.
Protecting the Parties
Performance Guarantees are provided to protect parties from various concerns such as contractors suddenly going bankrupt before completing the contract.
And when this happens, the compensation provided by the issuer of the Performance Guarantee may be able to overcome the financial difficulties and other damages caused by the contractor’s bankruptcy.
Usually Payment Guarantee and Performance Guarantee work hand in hand. A payment guarantee guarantees a party pays all entities, such as subcontractors, suppliers, and workers, involved in a particular project when the project is completed. Performance Guarantee ensures project completion.
Issuance of Performance Guarantees protects a party from monetary losses due to failed or unfinished projects.
For example, a client issues a Performance Guarantee contractor. If the contractor is unable to follow the agreed specifications in building the project, the client gets monetary compensation for any loss and damage that may be caused by the contractor.
Special Considerations
Typically, Performance Guarantees are required in the construction industry. This guarantee is widely used in construction and property development projects. They protect property owners and investors from low-quality work that may be caused by an unfavorable event, such as bankruptcy or contractor bankruptcy.
Performance Assurance is also useful in other industries. Commodity buyers can ask the seller to provide a Performance Guarantee. This protects the buyer from the risk that the commodity, for whatever reason, is not delivered. If the commodity is not delivered, the buyer receives compensation for the loss and damage caused by the non-completion of the transaction.
How much does a Performance Bond issue cost?
As explained above, there are two parties that can issue Performance Bonds, namely Banks and Insurance. The fees differ between banks and insurance.
If the Performance Bond is issued by the Bank, the bank will usually request that your funds (contractor) be held in the form of a deposit in the bank during the guarantee period. In addition, contractors are required to pay bank fees.
In terms of cash flow, it may be less attractive because your funds will be held during the guarantee period.
If the Performance Bond is issued by an insurance company, the insurance company usually asks for collateral/collateral but not as much as the required performance guarantee value, for example only 20%.
Even under certain conditions the insurance company does not ask for collateral / collateral at all. The contractor only pays the insurance premium. In terms of costs and cash flow is much more attractive.
But unfortunately lately many owners only require a Bank Guarantee.
What is a counter bank guarantee?
Counter Bank Guarantee or Counter Bank Guarantee is a collaboration between a Bank and an insurance company for the issuance of a Performance Guarantee. Its function is the same as a regular Bank Guarantee.
The way it works is where the Bank issues the Performance Guarantee in the form of a Bank Guarantee, but the guaranteed funds are the insurance company’s funds. Not contractor funds!
Of course, in terms of cash flow counter bank guarantees are very profitable for contractors.
But unfortunately it is not easy to arrange for the issuance of a Counter Bank Guarantee because it must “marry” between the Bank and the Insurance.
Why should you use the services of an insurance broker?
The best way to deal with counter bank guarantees is to use the services of an official insurance brokerage company registered with the OJK.
You need to be careful because lately many companies and individuals claim to be insurance brokers but they are not brokers. Maybe they’re insurance agents.
An insurance broker who will study your data, then compile it so that it is easily understood by banks and insurance companies.
If there are things that need to be completed, an insurance broker will help you find solutions and the underlyings needed.
Insurance brokers who will negotiate with banks and insurance to obtain guarantees that are in accordance with the contract and at the premium and bank fees and negotiate the most efficient guarantee value.
One of the insurance broker companies with experience in the field of bank guarantees and surety bonds is L&G Insurance Broker.
For all your insurance needs, contact L&G now.
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