On the bank guarantee foreign contracted engineering firms and their management

[Paper Keywords] foreign contracted engineering firms manage bank guarantee

[Abstract] foreign contracted projects with a large amount of investment, long construction period and other characteristics, the process of building many uncontrollable factors, so the parties involved in construction projects are facing greater risk. Bank guarantee as a project risk transfer an important form, effectively ensure the smooth implementation of construction projects. This paper mainly discusses the process of implementation of foreign contracted projects common guarantees, as well as how to strengthen the Contractor shall guarantee management in order to safeguard their own interests.
Guarantor shall guarantee that the applicant's request, made to the beneficiary as a form of payment as a means of payment by the guarantor made within a certain period bear a certain amount of credibility payment obligations written commitment to the guarantor is one or liabilities, the Guarantor will rely beneficiary submits a written consistent with the terms of the guarantee to pay claims under the guarantee obligation, its purpose is to make the other party to obtain a commercial contract guarantees to eliminate the party to the contract whether on business performance concerns, prompting commercial activities carried out smoothly.

First, foreign contracted projects involving introduction bank guarantee

(A common bond type

Foreign contracted engineering firms commonly used types of guarantees bid bonds, performance bonds, advance payment guarantee, warranty (stranded gold bond.

1 bid bonds, is to open a bank commissioned by the bidder to ensure that the tender issued by the bidder bidding activities engaged in legitimate written guarantee. Bid bond amount is generally priced items 1% to 5% bid bond validity generally 90 days from the date of the tender to 120 days, the applicant is tender guarantee project bidders, the beneficiary is the developer project bidders to tender security guarantees should be provided banks for foreign contracted projects cast << (proposed standard permit >> participate in the tender notice and being granted by banks to review tender bonds issued after the relevant information, along with bids be submitted by the bidders tender. bid opening, the successful bidder guarantees immediate effect, not the successful bidder's bond refunded promptly by the tenderer bidder.

Tender bonds guaranteed bank guarantee in the main one of the following circumstances, responsible for providing reimbursement: (a bidder in the tender validity period without cause withdraw its bid. (2 after winning bidder failed to sign a contract with the tenderer. (3) successful After bidder can not provide assurance of compliance documents.

Guarantee of claim terms, the general provisions Garanti Bank received the tender documents for the first time the claim should be immediately settled on the amount of the guarantee bond in the notice of claim, the tenderer must state reasons and circumstances of the claim, but without requiring confirmed at Garanti Bank and the contract between the bidder should be specified in order to clarify responsibilities.

(2) performance bond, the main contractor is to ensure full compliance with contractual obligations, that after the signing of the project contract, project contracting artificially restrict contractor to perform the contract, and require the contractor to provide a performance bond bank to open it guarantees contractor must follow the contract Terms fulfill its obligations, otherwise, the bank is responsible for a certain amount of compensation to the Employer. generally in the contract documents within a certain period after the signing out of the Project contractor for performance bond shall provide engineering contract and its annexes. performance bond guarantee amount, the regional disparities, generally defined as 10% of the contract amount due to the contractor is unable to perform its obligations under the terms of the contract, the developer claims to guarantees issued by the Bank written notice (attached breach may require proof, bank guarantees payment of liquidated damages shall be immediately but in the bond must be clear and its maximum liquidated damages can not exceed the amount of bond guarantee. performance bond guarantee period must be clear, that is out of date and guarantees termination date, guarantees project completion date of termination is generally longer than the acceptance or for some time, the specific circumstances of the project shall be determined over the termination date performance bond guarantee is void due to performance bond guarantee period is longer, to ensure a wide range of contractor default there are many reasons, so during the hidden risks also larger, Managers should arouse enough attention.

3 advance payment bond, according to the international engineering practice, are generally required to pay the Employer to the Contractor (contractor a certain amount of advance payment, which require the Contractor to the Employer prepay a certain amount of the project's construction cost, in turn, ensure that contracting human Contractor received advance payment does not fulfill the contract, to recover the advance payment and the interest, require the Contractor must provide a bank to open an advance payment guarantee. advance payment bond guarantees and the Employer Contractor's performance of the contract signed by the terms of Once the enterprise defaults, Garanti Bank will be responsible for return prepayments and accrued interest in the general case, the contractor and the developer signed a project contract, it recognizes the basic format of the bank guarantee and the terms of the Employer received from the bank guarantee only after the advance payment remitted to the project contractor, the contractor apply for the advance payment guarantee the information provided with the required performance bond consistent project advances are generally 15% of the contract amount, the amount of advance payment bond guarantees General and prepayment equal, as a result of performance of the contract and return the advance payment should interest specifically in terms of the contract, and in the advance payment guarantee of bank liability provisions stated in the Contractor can not fulfill its obligations under the contract, the bank As long as the Employer requested refund advance written notice, the bank within the validity period of the commitment to ensure a refund, including accrued interest.

Project Advance Payment Guarantee transformed to meet the contractor for the works, according to the different requirements of contract terms, there are three ways: (a mean reduction by stages; (2 according to the progress accelerating deductions; (3 concentrated buckle Less. projects, with the progress of the project advances gradually transformed into contractors deserve part of the works, so the advance payment guarantee is valid for entry into force of receipt of advance payment, advance payment is completely converted to engineering guarantees failure When the Employer clawing back full advance payment, the Contractor shall promptly return the advance payment guarantee urge the Employer in order to guarantee timely and reasonable to eliminate the risk.

4 retention guarantees, mainly guarantees the completion of the projects after the Contractor is warranted against defects refers to the banks for contractors to work out of the guarantee in favor of the owners, to ensure recovery of the balance due in advance, if the contracted projects reached Less than quality standards stipulated in the contract, the Contractor will be returned to this part of the project owners retention payments, retention guarantees also known as "stranded gold bond", "Reserved golden bond", "indwelling golden bond", "balance due guarantees."
In foreign project contracting, project owners typically retain 5% to 10% of project funds as a reserve of gold, upon expiration of engineering maintenance and with no defects and then paid to the contractor if the contractor does not require the owners to pay the full deduction retentions should submit a bank guarantee opened retention, ensuring project warranty expires, if the owners about the project receives written notice of a defect, the bank for the return of retention.

(Two way open letter of guarantee

The open way guarantees, mainly straight on, turn on, straight after opening additional insurance, plus sign and endorse the other types.
1 straight on, straight open bank guarantee refers request of the applicant, directly to benefit from prescribing the guarantee, by virtue of guarantees directly to the beneficiaries assume security responsibilities and obligations. Delivered straight to open the guarantee on its side, it can be divided into two types: (a guaranteed bank bonds directly to the beneficiaries, or by the commission directly to the beneficiary of the guarantee. (2 guaranteed bank guarantee opened, do not be submitted directly, but in addition a bank transfer please turn handed revenue side in the way forward, on behalf of transmitting the bank, called the transmitting bank or advising bank, its main responsibility is to verify the authenticity of the letter of guarantee and guarantee timely forwarded to the beneficiary, no other responsibilities and obligations.

(2) to turn aside or turn on the bonds is secured bank request of the applicant, according to the relevant provisions of the contract and the beneficiary country's practices, in order to provide a counter-guarantee in the form of commission on behalf of the beneficiary bank location opened guarantees, and The trustee bank liable for the payment to the beneficiary. Such transfer may be called to open the way guarantee "chain security."
Turn on the real guarantor guarantees the beneficiary location entrusted with handling or turn on a bank guarantee, the applicant only at the location of the counter-guarantee bank's position, which guarantees issued to deal with the transfer to open a bank guarantee in favor of the Trustee banks in accordance with the counter-guarantee against the guarantor guarantees issued to the beneficiaries and their relationship constitute a guarantee contract.

3 plus insurance, plus sign and back sign, customary practices in some countries in Asia and Africa, but also requires foreign banks to open direct guarantee by the beneficiary country must be endorsed or endorse the bank to accept due to different practices in various countries and regions the guarantee plus insurance, plus sign and endorse the understanding and implementation of these acts banks responsibilities also vary in some countries, such approaches aim, is only required to open to foreign banks to verify the authenticity guarantee . Plus insurance, plus sign and endorse the practice of the bank guarantee does not assume responsibility for any payment, nor accept any claims for beneficiaries. They do not become a real party guarantees, just play a role in transmitting the line, but also Some countries consider additional insurance on bonds, additional insurance is actually a bank guarantee in to add its confirmation, if the implementation process, the applicant defaults, or beneficiary of a contractual obligation not compensated to complete these additional insurance for banks will also bear be paid to the beneficiary's responsibility, therefore, these banks should also be implemented as a guarantee of the parties.

(Three letter of guarantee and the guarantee fee

1 business opened guarantees, general bank deposit guarantees to guarantee a certain percentage of the amount of the deposit, part of the deposit shall not be used in the guarantee period, only the guarantee obligations are discharged, before refund guarantee utilized. Secured bank credit good Business requirements may be relaxed, you can agree to use real property as collateral. many enterprises to adopt good credit in the form of collateral-free open bonds, banks can give a certain amount of collateral-free credit. companies should also actively to the banks for credit limits, use of credit open credit guarantees, without deposits. If you do not obtain bank guarantee line of credit, you must deposit a certain percentage of the margin, you can guarantee deposits into time deposits in order to obtain interest income, reduce the mortgage bond losses.

(2) secured bank guarantee amount under the opened letter of guarantee fee charged on a quarterly basis. Guarantee fee rate varies from local bank regulations should be present, China's domestic bank guarantee fee on a quarterly accrual at a rate of one ‰ ~ 1.5 ‰, open foreign bank guarantee, letter of guarantee fee quarterly 1 ‰ ~ 2 ‰, the guarantee fee is roughly equal at home and abroad, but when you turn on the bonds, as well as guarantees or turn on fee. need to pay attention to timely master bond amount changes, reduced fee. example, bid bonds, settled promptly after bid opening, bid bonds winning project should be promptly converted to performance bonds. performance bond guarantees to grasp the termination. advance payment bond in each after deductions, has reduced the bond amount due to commission expenses should be reduced accordingly.

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Second, concerning the accounting treatment and management of guarantees

(A guarantee business accounting

1 Open guarantee prior to the accounting treatment of bank deposits, according to the amount of bank accounting entries as follows:

By: Other monetary funds - Letters of guarantee

Credit: bank deposits

Margin Call or decreases and vice versa accounting entries.
(2) For the deposit amount, according to the length of time the funds will dump a regular basis to get some income to reduce the letter of guarantee losses caused by use of funds for the interest income, accounting entries are as follows :

By: bank deposits

Credit: Finance costs

3 Subject to guarantee bank transfer fee when the guarantee fee charged by the bank accounting treatment as follows:

By: Finance costs - guarantee fee

Credit: bank deposits

4 If you use a bank letter of guarantee or a line of credit secured by fixed assets or by using the special risks of foreign contracted projects bond funds in the balance sheet should be disclosed in the notes for the use of bank credit line, should strive for banking facilities granted to the Free Guarantee share of bank guarantee in order to reduce bond for capital intensive margin, increasing the efficiency of enterprises.

(Two foreign contracted engineering firms bond management

In foreign project contracting, engineering firms issuing bank guarantees are contracted projects in the daily work order to prevent and reduce the risk of bank guarantees and losses, foreign contracted engineering firms should be particularly strengthened management of bank guarantee.

(1) Establish Guarantee accounting, strengthen management of the whole process guarantees

As China's major foreign project contracting growing, the company's guarantee business in terms of quantity or amount has been a qualitative change, to establish an effective ledger is very necessary to guarantee the ledger include at least the elements and guarantees Types of bonds from the current situation, corporate bond management departments should strengthen internal approval guarantees, bank application, issuing, tracking, extension, revocation whole process of management, especially advance payment guarantee tracking management is particularly important, advance payment guarantee is a kind of responsibility decrement guarantee. When the progress of the project has been completed to reach a total deduction from, the owners will be after each interim payment by a certain percentage rebate advance, advance payment bond corresponds to the guaranteed amount should be reduced accordingly, so the Contractor shall promptly provide to the bank owners The prepayment amount has been deducted from the relevant supporting documents, which the bank will subtract the corresponding amount, and subtract the guaranteed amount to the beneficiary after when the unit owners rebates completely Ministry advance, the Contractor shall promptly urged owners to return the advance payment guarantees, in order to guarantee timely and reasonable manner to eliminate the risk.

(2) establish guarantees inventory system, strengthen project investment (proposed standard license management

Regularly check guarantee deposit balances and bonds due or extension in time for the relevant procedures. Generally, more than guarantee period, namely that the bond lapsed automatically, but in some cases, if the bond maturity to the bank failed to promptly withdraw procedures, when the bond still bear exposure to claims, and the bank will continue to receive appropriate guarantee fees. Accordingly, the Contractor must attach great importance to guarantee the cancellation of maturity, the progress of the project closely linked with the guarantee management, in order to reduce unnecessary loss guarantees, such as the bond after the expiration of the original return, get the owners to carry Guarantee Disclaimer cancellation of such work.

For outsourcing contracts signed in the amount of more than $ 5 million project to obtain the Ministry of Commerce issued << foreign contracted projects investment (proposed standard permit >> Open Project bonds are within one of the elements, showing that apply < <foreign contracted engineering project investment (proposed standard permit >> work is very important.

(3) Strengthen risk prevention awareness, letter of guarantee to insure high-risk countries

In the international engineering contracting, the individual guarantee beneficiaries, especially the use of guarantees for private property owners malicious fraud cases frequently occur, so as a modern construction enterprises, must have sufficient knowledge of bond risk, and take appropriate precautions. For this circumstances, such as the owners for no reason or excuse for withdrawals from banks with guarantees, the Contractor may recoup their losses through litigation, but because of time-consuming litigation, the Contractor shall take precautions beforehand, learn to identify possible fraud.

In general, the bond shall be issued by a bank letter of guarantee to constrain the law of the State and interpreted, but often require the beneficiary of its national laws and construed this end, if there is any dispute, but also refused to budge, you can press the International Business Law interpretation of the law or a third country for certain high-risk countries, guarantees the applicant may apply to the insurance company guarantees the insured risk and insurance included in the offer (bid typically used in large-scale projects) from February 16, 2011 onwards, China organized a large scale withdrawal of personnel from Libya more than 35,000 people, the loss of tens of thousands of projects under construction in Libya. part owner of a claim has been made, if handled bond risk insurance companies, the loss will be greatly reduced.

4 Reduce the guarantee fee, to strengthen the relationship between banks and enterprises, timely choose to open offshore bank guarantee

Guarantee an increase in business must increase the financial cost and risk. Issuing corporate bonds must first spend a bank line of credit, or an enterprise to its own funds to provide guarantees to banks directly affect production and operation funds. Additionally, corporate bond issuance according to guarantee a certain percentage of the amount to the bank to pay the costs, will increase the company's financial costs, thereby increasing business risk. Due to limited expertise and economic security impact, banks are usually reluctant to be involved owners and contractors disputes among the banks in the process of opening guarantees tend to use no joint and several liability guarantees, ie for Demand., and the bank guarantees issued, the Contractor also signed a counter-guarantee agreement with the bank to ensure that banks payment bond claim amount incurred principal, interest, liquidated damages, damages and bank debt incurred to achieve other reasonable expenses from the surface, bond between the bank and the beneficiary of a contractual agreement, in fact, between the principal and the beneficiary is a creditor, debtor relationship, the contract is guaranteed from the contract if an event occurs guarantee claims, the bank acting as an intermediary plays a very crucial role, therefore the Contractor shall seek to obtain the support of banks and cooperation in order to enhance their resilience. timely choose foreign banks to open letters of guarantee bond costs can be reduced due to overseas projects, which helps to save time issued bonds, but also eliminates the need to open an intermediate transfer fees, bond business is a new development model .

Finally, in the bond issue, you should try to choose a conditional guarantee for a reasonable settlement of claims win time, you should pay attention to deadlines and guarantees defined in the contract is necessary to meet needs, but also to try to shorten the warranty period, the project implementation process, we should seriously study terms of the potential risks for timely and effective identification and early warning to prevent the occurrence of guarantee claims, corporate finance and management personnel should cooperate closely in time for advance payment bond impairment procedures, strengthen the bonds issued by the row with business communication and liaison, improve emergency response capabilities, etc.; hand over the project period should be promptly replaced by a retention guarantee performance bond, letter of guarantee for the required extension for extension should be to reduce the risk of claims by the owners.

Main Ref:

[1] Zhangqing Fan, Zhang Qingyong. Discussion engineering contractor guarantees Management [J]. Construction Enterprise Management, 2003 (8.

[2] Lifeng Ting, Yu Shu Lin. Foreign trade accounting practice [M]. Beijing: China Business Press, 2010 (Fourth Edition.

[3] Yu Jian-depth implementation of the "going out" strategy to create a new pattern of opening [J]. International Economic Cooperation, 2011 (3). Links to free download http://eng.hi138.com

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