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Defence Estate Quality Management System (DEQMS) Davis Langdon Certification Services

Receipt and Lodgement of Bank Guarantee and / or Insurance Bond (Security)

Approved security in the form of a bank guarantee and / or insurance bond (security) is required for all construction contracts. This is to provide some assurance and an avenue of recourse under the contract should the contractor not perform as specified in the contract. This is an unconditional undertaking in the form set out in the Schedule of Collateral Documents and the guarantee / bond is sourced by the contractor from a financial institution. The guarantee / bond must be reviewed by the PMCA to confirm that it does not contain any clauses that restrict the use being ‘unconditional’. The guarantee / bond is held by the Commonwealth for the term specified in the contract and released back to the contractor upon satisfactory execution of the contract scope and terms. The process for managing the receipt and release of guarantees / bond is described below.

Process

Task 1 - Contract Execution

  • The PMCA must ensure that the contractor supplies to Defence any required guarantees / bonds by the date specified in the contract. The guarantee / bond is due within 14 days of the award date of the contract (as per the conditions of the contract).

Considerations

  • Refer to the contract for the amount required for the bank guarantee / bond. Note: Typically the bank guarantee is defined as 5% in the contract particulars and is usually in the form of two 2.5% guarantees / bond with one released at the end of project completion and the other at the end of defects liability period, but these arrangements may vary according to the contract.

Outcome/ Deliverable

  • The bank guarantee / insurance bond is sourced by the contractor from a financial institution and supplied to Defence.

Task 2 - Receipt Of Guarantee / Bond

  • The contractor will provide the guarantee / bond to the PMCA who must review it to ensure that the guarantee and / or insurance bond is an unconditional undertaking and in the form and quantity defined in the contract. Once this is complete the guarantee / bond will be provided to the CFI Project Officer. The PMCA or Contractor is not to submit the guarantee / bond directly to Financial Operations Branch.

Considerations

  • The CFI Project Officer must review the bank guarantee / bond to confirm that it is an unconditional undertaking and in the form set out in the schedule of collateral document and given by a financial institution approved by the Commonwealth (as defined in the contract particulars).
  • If at any stage the CFI Project Officer is uncertain that the bank guarantee / bond is unconditional then advice shall be sought through the projects legal advisor or DPA.
  • The CFI Project Officer must scan the guarantee; label it appropriately and save it into Objective.

Outcome/ Deliverable

  • The CFI Project Officer receives the guarantee / bond in an appropriate form.

Task 3 - File the Bank Guarantee / Bond

  • The CFI Project Officer must lodge the guarantee with the Financial Operations Branch (R1).
  • The CFI Project Officer must draft a covering note addressed to Financial Operations Branch outlining the relevant project number and CFI project officer email address and phone number.
  • Send an email to the Financial Operations Branch stating your intention to submit the bank guarantee within 24 hours and requesting the desk number to which the gurantee must be delivered.
  • All receipting emails and enquiries, including anything relating to Bank Guarantees should be sent to treasury.banking@defence.gov.au
  • The CFI Project Officer is to submit guarantees / securities and covering note to Financial Operations Branch through internal mail where possible. If necessary, the guarantees / securities may be hand delivered to the desk number as advised by Financial Operations reply email.
  • A receipt with the reference number will be provided by the Financial Operations Branch to the CFI Project Officer to acknowledge the lodgement of the bank guarantee / bond. Copies may be made by the CFI Project Officer but the original must be stored with the Project File and used as evidence to release the guarantee / bond upon contract completion.
  • If the original receipt is lost then a specific lost receipt process must be followed to retrieve the guarantee / bond.

Outcome/ Deliverable

  • The original bank guarantee / insurance bond receipt is retained by Financial Operations Branch as part of the project documentation and a scanned copy is kept in the CFI project Objective area.

Task 4 - Release Security

4A - Project Completion (first release of the Guarantee)

  • The CFI Officer must release the required percentage of the guarantee / insurance bond within 14 days of the issue of the Notice of Completion of Works or for authorised project milestones. Note: Typically the contract specifies half of the security required be released (2.5%) upon Completion and half at the end of Defects Liability stage. The specifics for each contract are defined in the contract particulars.
  • The CFI Officer must send an email to the Financial Operations Branch giving 24 hours’ notice that they intend to collect the bank guarantee This email must reference key details provided on the submitted guarantees / securities such as the contractor’s full business name, mailing address, guarantee / security value and guarantee reference number. All receipting emails and enquiries, including anything relating to Bank Guarantees should be sent to defence.receipting@defence.gov.au.
  • The original guarantee/ bond receipt reference must be provided to the Financial Operations Branch The portion of the original bank guarantee / bond (as specified in the contract) is to then be released to the CFI Officer.
  • Financial Operation Services will send the released versions to the CFI Project Officer or the CFI Project Officer can email Financial Operations Branch to propose a time and date to collect released versions in person and return them to the Contractor themselves.
  • The CFI Project Officer must store the signed acknowledgement on the project file (proof of ownership).
  • Note: In some circumstances it may be necessary to consider the staged release of a guarantee. When determining whether to stage the release of a guarantee / bond refer to the conditions in the contract and seek advice from DPA.

Outcome / Deliverable

  • The signed acknowledgement must be filed with the contract (proof of ownership) in Objective

Task 4 - Release Security

4B - End Of Defects Liability Period (final release of the Guarantee)

  • The CFI Officer must release the remaining security within 14 days of the expiration of the Defects Liability Period. Note: Typically this will be the remaining 2.5% of the security required be released. This is defined in the contract particulars.
  • The CFI Officer must send an email to the Financial Operations Branch giving 24 hours’ notice that they intend to collect the bank guarantee. This email must reference key details provided on the submitted guarantees / securities such as the contractor’s full business name, mailing address, guarantee / security value and guarantee reference number. All receipting emails and enquiries, including anything relating to Bank Guarantees should be sent to defence.receipting@defence.gov.au.
  • The original guarantee/ bond receipt reference must be provided to the Financial Operations Branch. The portion of the original bank guarantee / bond (as specified in the contract) is to then be released to the CFI Officer.
  • Financial Operation Services will send the released versions directly to the Contractor or, alternatively, the CFI Project Officer can email Financial Operations Branch to propose a time and date to collect released versions in person and return them to the Contractor themselves.
  • The CFI Project Officer must store the signed acknowledgement on the project file (proof of ownership).
  • Note: In some circumstances it may be necessary to consider the staged release of a guarantee. When determining whether to stage the release of a guarantee / bond refer to the conditions in the contract and seek advice from DPA.

Outcome / Deliverable

  • The signed acknowledgement must be filed with the contract (proof of ownership) in Objective.

Note: In some circumstances (as defined in the contract) the CFI Officer may exercise their rights to withhold the release of the guarantee / insurance bond. If at any stage the CFI Project Officer is uncertain that the bank guarantee / bond should be released then advice shall be sought through the projects legal advisor or DCFPC before such a release is executed.

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