Photo of Bhupendra Verma

Bhupendra is a Principal Associate with the Projects team at Noida office of Cyril Amarchand Mangaldas. He advises developers and contractors on the construction contracts for various infrastructure projects varying from roads, airports, ports, renewable energy, waste water management, etc. He can be reached at bhupendra.verma@cyrilshroff.com

Bank Guarantee

A move that may prove to be a game-changer but the proof lies in the pudding

A government procurement contract (GPC) for goods and/ or services usually requires the elected counterparty (Contractor) to furnish a bank guarantee (BG) of upto 5-10% of the contract value as performance security, as per General Financial Rules 2017. Rising non-performing assets, in recent years, have prompted banks to exercise greater caution while issuing BGs, due to which, the cost of procuring a BG has gone up from 20-40 basis points to 50-130 basis points and the cash margin required for securing a BG has also increased from 15-20% to 40-100% of the amount of the BG. Owing to these factors, the procurement of a BG has become increasingly cumbersome for Contractors and they have been long-advocating the need for an alternative to BGs.

Continue Reading Replacement of bank guarantees with surety bonds in government procurement: A welcome relief?