08-10-2006
Bank guarantee is the one of the world-wide accepted mechanisms of adjustment of the contractual relationships, especially in the capital-intensive segments of the economic activity. The construction business is not an exception from this practice. Rather the contrary, the investments volumes into the commercial building and also the customer profit dependence on such factors as the quality and the timeliness dispatches of the building works starting from the eighties made the presence of the bank guarantee the one of the basic factors of the competition in the area of the western general contracted companies. The situation in our country is a little bit different.
The lack in development of the building and bank branches of the Ukrainian economy in comparison with the western countries allows the most of the domestic general contractors (unlike contract organizations which use the bank guarantee quite actively) to work "in an old manner" without enlisting the support of serious financial institutes.
However, many experts consider that not to last for a long time. The main reasons for the rapid changes named by the specialists are the coming of the western investors into the Ukrainian economy and the expansion of the western approach to conducting the business among domestic customers. Exactly due to the last factor the contracts on erection of such industrial projects as «Baltik Beverages Holding» (the trade marks «Slavutich», «L’vivs’ke», «Arsenal»), «NVK» (the trade marks «Khlibhyi dar», «Celcius», «Baika») and «Image Holding» (a trade mark «Khortyts’a») are already being signed with those general contracted organizations which give preference to the western technologies of management and also adhere to the quality standards accepted abroad. The experts think that the bank guarantee is the one of such standards on high-quality implementation of building works in the beforehand agreed terms.
Andres Erm, the Chairman of Administration of the company «Eurokon Ukraine», which is the first general contract organization at the building market of Ukraine, says about the essence of this type of guarantee obligations which gives the customers a similar service: «As it is shown in practice, the guarantee is the one of the basic moments disturbing the customer at signing of an agreement of general contractor. A customer puts up a large sum of money in building process of the project and, naturally, wants to be sure that the project will be erected in high-quality, in the agreed terms and for the price set in the agreement. The bank guarantee on building is used exactly for providing the confidence which regulate the relations between the general contractor and the customer in such aspects as:
The triple supervision after the quality of building process is the one of the main pluses which gets the customer giving a preference to the general contract organization which provides the bank guarantee.
The realization of the triple supervision takes place with the assistance of the internal services of the contractor and the guarantee bank, and also directly with the assistance of the customer who can carry out the technical supervision and control after implementation of works through the specialized subdivision: to make examinations, tests for compliance of works and financial resources set by the requirements, and also to check up the daily register of the carried works.
If the customer reports about the improper quality of the carried works in the result of control, the disparity of quality of materials or about any defects found at building the project, all production costs concerned with the troubleshooting will be carried out at the expense of the contractor.
The customer can report about the arisen troubles and defects in the executed works both at the receiving of an object in use and during all the period of validity of the guarantee. In the case when the customer reasonably denies the acceptance of the project in use and the compile list of defects is made by examination, a contractor must eliminate them in terms set by the customer. According to this, the general contractor, who gives a guarantee, is interested in providing the client with the most complete information about the expedience of building place, the successfulness of project and possible problems which can arise during the building process».
The experts note that the main advantage of the bank guarantee consists in providing benefits for all sides of the building process. Then, the customer gets financial guarantees that the building process will be finished high-quality and strictly in the set terms (the last is especially important in the commercial and industrial sectors of housing market).
It is worth mentioning that recently popular insurance of risks of adhering to the building terms advantageously differs from the bank guarantee by complete absence of the financial obligations on the part of the customer.
The general contractor takes serious priorities over the competitors. Thus the presence of this advantage obliges him to recruit the best specialists to work over the project who give the quality certificates and to use only the most reliable and high-quality materials during the building process, because none of the serious banks will take the guarantee services for unreliable building company.
As for the very bank structure, its interest is in the getting of reward from the side of general contractor for the granting a guarantee. The sum of reward usually makes certain percent from the sum of guarantee. It is important both for a client and for a contractor which bank gives a guarantee. According to Andres Erm’s words «the more reliable is the bank, the more is the trust in the contractor and his professional approach to a client. We give the customers the guarantee of Hansabank. This is a bank of «AAA» category, one of the largest banks in the East Europe and an old partner of the «Eurokon» company. The guarantee letter of the bank is added to the agreement of the general contractor where the terms of guarantee are agreed. As it goes in the letter, in case of refuse from executing the terms of the guarantee on the part of the contractor, a customer can appeal to the bank for indemnity mentioned in the guarantee letter of the bank»