Financial Guarantees for Tenders
It is becoming more and more important for companies responding to Government tenders in South Africa, to proof that the company responding, has financial capacity to execute the contract. The reason for this is to safeguard Government Entities against companies being awarded a tender and then failing to execute because of a lack of financial resources.
Underneath is a typical Financial Guarantee requirement we found in a recent Gauteng Provincial Government tender:
"The responding bidder must show capacity to deliver a sustainable service for a period of three (3) months without external support.
In order to do so a Bank guarantee letter must be provided and this will count for 10 points towards the Functionality score:
- Supplying a R9 000 000.00 financial guarantee will earn the bidder 10 points;
- Supplying a R6 000 000.00 financial guarantee will earn the bidder 6 points;
- Supplying a R5 000 000.00 financial guarantee will earn the bidder 3 points;
- A guarantee of less than R5 000 000.00 will earn the bidder zero points.
Any other proof of financial resources of funding which the bidder intends on utilising to fund this project can also be submitted. (The Department requires this information to ascertain whether the bidder can carry the initial cash commitments for a period up to three (3) months for the district, or each of the districts, awarded to the bidder without any additional external support)."
As you can see from the example it is important to have financial resources in order to secure a tender.
A Financial Guarantee is also called a Bid Bond, Tender Bond or a Tender Guarantee.
The purpose of a tender guarantee is to safeguard procuring entities against unqualified bidders submitting a bid. The tender guarantee acts as security against the risk of the bidder failing to accept or execute the terms of the contract awarded to them.
Remember that all financial guarantees are structured under secured credit facilities and credit agreements. Obviously the bidder will have to provide assets as security for financial guarantees. Mostly part of the requirements will be that assets provided as security are properly insured and it is usually a condition of the credit facility agreement.
To learn more about this and many other tender conditions please attend one of our How-to-Tender workshops. For more information on the tender courses please email Werner at email@example.com
This article was written by Werner van Rooyen, Director of HowToTender (Pty) Ltd. which specializes in tender consulting and tender training.