Insurance guarantees have emerged as an alternative to letters of guarantee issued by banks. There are two basically types of guarantee instruments that can be used in Romania:
1. Unconditionally guarantees (issued in the form of "bank guarantees letters" issued by banks)
2. Conditional guarantees (issued by insurance companies)
Financial problems, and particularly the lack of liquidity, arising from the financial crisis which affected Romania from 2008 until in the present, forced companies from Romania to switch to insurance guarantees offered by insurance companies to the detriment of banking products such as letters of guarantee. Thus, the government decision with nr. 834/2009 mention that the guarantees issued by insurers are expressly accepted forms of guarantee by public institutes to participate in awarding the public auctions. However, nearly four years after the implementation of the new legal provisions, warranty insurance market is underdeveloped in this area.
By providing guarantees, insurer undertakes to pay compensation if the beneficiary is insured and it shows faults that can not fulfill its obligations under the contract of work / service. Most contracting authorities require companies participating in the auction bank guarantees, although the guarantees issued by insurers are expressly incorporated into the category of eligible collaterals. Companies that participate in auctions organised in Romania must know that contracting authorities do not have the right to choose or to impose what kind of guarantee is needed.
The insurer covers risks arising from failure or improper performance of the contractual obligations assumed by the Insured under contract with the beneficiary.
There are four types of collateral as it follows:
- Providing tender guarantee (Bid Bond). According to statistics in Romania, this type of insurance is the most used from the guarantee insurances. This is because this type of insurance is required in the vast majority of auctions organised for various types of projects.
- Performance guarantee insurance contract (PERFORMANCE BOND)
- Providing Guarantee for advance return (ADVANCE PAYMENT BOND)
- Provide warranty period maintenance / maintenance (MAINTENANCE BOND). Regarding the fact that in Romania the infrastructure is quite poorly developed and there are many building sites to improve it, more and more companies, especially construction companies realized lots of infrastructure projects. Many of those projects deteriorated in a short period of time after completion of works. Therefore it was decided that one of the main condition for receiving a construction work will be the presenting of a performance bond insurance.
Depending on the type of collateral required, the Insured may be:
- Bidder - Guarantee Clause of the tender offer. The term Provider means any economic operator who has submitted the tender following the announcement / invitation to tender (manufacturer, supplier, contractor, contractor, provider). or
- Contractor - for other types of collateral.
The term Contractor refers to the tenderer which has become, under the law, a party to a public contract or framework agreement (builder, contractor, subcontractor, supplier, contractor, provider).
The Insurance product guarantees offered covers the performance of contractual obligations for public and private construction projects.
Bid Bond - Guarantee Clause of the tender offer
By this clause, the Insured and the Insurer mainly in the alternative is firmly committed to ensuring Employer obligations arising from the tender offer.
Advance Payment Bond - guarantees the return clause advance
Mainly insured and insurer, in the alternative, for damages Beneficiary guarantees, if the insured is guilty of failure or improper performance of obligations under the Contract relating to the use and return of the advance, up to the amount insured.
Performance Bond - Clause guarantee of good execution of the contract
Mainly insured and insurer, in the alternative, for damages Beneficiary guarantees the maximum amount insured if the insured is guilty of failure or improper performance of obligations under the contract of work / service and the beneficiary finds some weaknesses, shortcomings, defects in the works.
Maintenance Bond - Guarantee Clause during maintenance / maintenance
Mainly insured and insurer, in the alternative, for damages Beneficiary guarantees, if the insured is guilty of failure or improper performance of obligations under the Agreement on technical maintenance and address any deficiencies receiver, warranty of the work for which it is liable under the contract execution.
The Insurance guarantees are issued under a contract between the insurance company, contractor-insured (person who needs insurance) and the beneficiary (the person who will receive insurance if the insured fails to honor its obligations under contracts or provision of services).
Providing you can use to guarantee the bid, performance guarantee of work or services, advance return guarantee, warranty or maintenance period for a service or maintenance work performed.