Guarantee Insurance
Insurance on public procurement performance guarantees is gaining increasing popularity since amendments to the Public Procurement Act, effective from 15.04.2016, permit the same as an alternative to monetary and bank guarantees.
Guarantee insurance is a new and innovative product on the Bulgarian insurance market which has a number of advantages. Thanks to the insurance, clients do not block funds and assets in a bank which allows them to participate in more tenders. The policy issuance process is quick and facilitated and the insurance price is often more competitive than the bank guarantee price.
Guarantee Insurance is a specific tripartite contract between Principal, Contractor and Insurer which aims at transferring the risk related to the performance of a public procurement contract from the Contractor to the Insurer.
In guarantee insurance the subject matter of insurance is the liability of the contractor upon signing and performance of the public procurement contract in compliance with the tender documentation terms. There are different types of guarantee insurance, depending on their purpose and the type of contract they are used for.
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Good Performance Guarantee – It serves to secure the good performance of the public procurement contract and is mandatory only for the participant selected as contractor. The principal will require the provision of such guarantee, so that the contract could be signed. Usually, the guarantee amount required is between 5% and 10% of the contract value.
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Advance Payment Guarantee – This guarantee serves as a security for the principal, in the event of breach of contractual obligations by the contractor who received an advance payment. The guarantee amount as well as the terms and conditions of its release are explicitly stated in the contract. Usually, the guarantee amount required is between 10% and 30% of the contract value.
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Maintenance Guarantee – It serves as a security for the principal for a definite period of time after contract completion, in the event of poor performance. Usually, the guarantee amount required is between 5% and 10% of the contract value.
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Tender Participation Guarantee – This guarantee serves to secure the participation in a public procurement award procedure, in the event that the tenderer withdraws their offer after the deadline or refuses to sign a contract after being selected as contractor. Usually, the guarantee amount required is between 2% and 5% of the contract value.