Subcontracts - Bank Guarantees

There is nothing new about subcontractors giving bank guarantees to their principal for security, however it is important to be aware of how the principal can use that guarantee.  In particular, some subcontracts provide that a principal is able to pull a bank guarantee even if they make a claim that a subcontractor is in breach.  "Making a claim" and "establishing an entitlement" are two different things.  The result is that your own money can be used by the principal to fight against paying you for outstanding invoices. 

Generally if subcontractors want the work it can be difficult to negotiate the terms of the contract - however you should always make sure you understand the consequences of certain clauses of the contract.

Tags: Bank, Guarantee, BCIPA, Construction, Subcontract, Debt, Unpaid

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